Gowers Review PDF

Gowers Review
of Intellectual Property
December 2006
December 2006
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CONTENTS
Page
Foreword 1
Executive Summary 3
Chapter 1 Definition 11
Chapter 2 Challenges and Opportunities 23
Chapter 3 Performance 35
Chapter 4 Instruments 45
Chapter 5 Operations 77
Chapter 6 Governance 111
Chapter 7 Conclusion 119
Annex A Glossary 121
Annex B Call for evidence 129

FOREWORD
For many citizens, Intellectual Property (IP) is an obscure and distant domain – its laws shrouded in jargon and
technical mystery, its applications relevant only to a specialist audience. And yet IP is everywhere. Even a
simple coffee jar relies on a range of IP rights – from patents to copyright, designs to trade marks.
In the modern world, knowledge capital, more than physical capital, drives the UK economy. Against the
backdrop of the increasing importance of ideas, IP rights, which protect their value, are more vital than ever.
The ideal IP system creates incentives for innovation, without unduly limiting access for consumers and follow-
on innovators. It must strike the right balance in a rapidly changing world so that innovators can see further
by standing on the shoulders of giants.
The Government’s decision to commission this Review was an explicit recognition both of the growing
importance of IP and of the challenges brought by the changing economic environment. In commissioning the
Review, the Chancellor and the Secretaries of State for Trade and Industry, and Culture, Media and Sport
asked me to establish whether the system was fit for purpose in an era of globalisation, digitisation and
increasing economic specialisation.
The answer is a qualified ‘yes’. I do not think the system is in need of radical overhaul. However, taking a holistic
view of the system, I believe there is scope for reform to serve better the interests of consumers and industry
alike. There are three areas in which the Review concentrates its recommendations to improve the UK
framework for innovation:
• strengthening enforcement of IP rights, whether through clamping down on piracy or trade in

counterfeit goods;
• reducing costs of registering and litigating IP rights for businesses large and small; and
• improving the balance and flexibility of IP rights to allow individuals, businesses and institutions to use
content in ways consistent with the digital age.
Much IP policy is framed by European, and indeed global, treaties and agreements. I recognise that not all the
recommendations are within the direct purview of the UK Government. However, I have not shied away from
making recommendations with European or broader international import when they seemed necessary.
Indeed, with the European Commission currently reviewing both the copyright acquis and the question of a
Community patent, this is a timely point at which to put forward the Review’s arguments.
I would like to express my thanks to all those who assisted me in producing this Review. Many individuals and
organisations gave generously of their time to contribute insights, and in particular the great diversity and
depth of responses to the Call for Evidence were invaluable. I owe a special debt to the Review team, who have
supported me throughout: Richard Sargeant, Steve Coles, Alastair Cowie, Suzy Kantor, Nicola Kay, Stephen
Rowan and Nathan Sansom.
I hope this Review provides sound recommendations on how the IP regime should respond to the challenges
that it faces. Getting the balance right is vital to driving innovation, securing investment and stimulating
competition. Lasting success will belong to those who get this right.
Andrew Gowers
The Gowers Review 1

2 The Gower Review
E EXECUTIVE SUMMARY
The changing E.1 Globalisation and technological advance are changing the shape of the world
context economy. Increased international trade and investment flows and the emergence of
economies such as China and India create great new opportunities for advanced economies
such as the UK, but also great challenges. The UK’s comparative advantage in the changing
global economy is increasingly likely to come through high value added, knowledge intensive
goods and services. The Intellectual Property (IP) system provides an essential framework
both to promote and protect the innovation and creativity of industry and artists.
Increasing E.2 The increasing importance of knowledge capital is seen in its contribution to the
importance of value of firms. In 1984 the top ten firms listed on the London Stock Exchange had a combined
intangible assets market value of £40 billion and net assets of the same value. Advance twenty years and the
asset stock of the largest firms has doubled while their market value has increased nearly ten
times.1 The difference in value is accounted for by intangible assets: goodwill, reputation and,
most importantly, knowledge capital. Knowledge based industries have become central to the
UK economy – in 2004 the Creative Industries contributed 7.3 per cent of UK Gross Value
Added, and from 1997 to 2004 they grew significantly quicker than the average rate across the
whole economy. 2 The pharmaceutical industry accounted for almost a quarter of the UK’s
total R&D expenditure in 2004. Innovative ideas create value, whether they are improved
products, new brands or creative expressions. As a result, IP rights – the means by which these
assets are owned – have become a cornerstone of economic activity.
Opportunities E.3 Global and technological changes have brought undoubted opportunities for
businesses and consumers. The erosion of global trade barriers has enabled companies to
reach ever larger markets and gives consumers a wider range of products to choose from.
Technological changes have enabled more ‘open’ models of innovation, with greater cross-
fertilisation across firms and the ability to harness the creativity of consumers.
Challenges E.4 However, while global and technical changes have given IP a greater prominence in
developed economies, they have also brought challenges. Ideas are expensive to make, but
cheap to copy. Ideas are becoming even cheaper to copy and distribute as digital technology
and the Internet reduce the marginal cost of reproduction and distribution towards zero. As
a result, the UK’s music and film industries lose around twenty per cent of their annual
turnover through pirated CDs and illegal online file sharing. Furthermore, global markets
must contend with rights that remain largely national in scope.
Terms of E.5 In response to the profound global changes affecting the IP system, the Chancellor of
reference the Exchequer commissioned this Review in the 2005 Pre-Budget Report. The Review was
charged with examining all the elements of the IP system, to ensure that it delivers incentives
while minimising inefficiency. Its terms of reference were to consider:
• the way in which Government administers the awarding of IP rights and its support to
consumers and business;
• how well businesses are able to negotiate the complexity and expense of the copyright
and patent system, including copyright and patent licensing arrangements, litigation
and enforcement; and
1
Wealth Creation in the Knowledge Economy, Potter D., accessed at: http://www.number-10.gov.uk/output/Page3051.asp.
2
DCMS Creative Industries Economic Estimates, DCMS, 2006.
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E EXECUTIVE SUMMARY
• whether the current technical and legal IP infringement framework reflects the digital
environment, and whether provisions for ‘fair use’ by citizens are reasonable.
E.6 The Review found the current system to be broadly performing satisfactorily.
However, there are a number of areas where reform is necessary to improve the system for all
its users. The Review therefore sets out a range of pragmatic recommendations, which can be
grouped around three themes: first, stronger enforcement of rights; second, lower costs for
business; and finally, balanced and flexible rights.
Stronger E.7 Counterfeit goods and piracy are damaging the UK’s creative industries, as well as
enforcement of threatening jobs. The Review recommends:
rights
• consulting to ensure that an effective and dissuasive system of damages exists
for civil IP cases. This will provide an effective deterrent to IP infringement;
• matching penalties in the physical and digital world for IP infringement. This
will remove the current unjustifiable anomaly whereby infringement in the
digital world carries softer penalties than infringement in the physical world.
This is particularly important given that so much infringement now occurs via
digital media; and
• giving Trading Standards the power and duty to enforce copyright

infringement. This will ensure that preventing the sale of copyright infringing
goods, for example counterfeit CDs, will become a duty of Trading Standards
agencies throughout the country.
Lower costs for E.8 It is expensive to obtain and defend IP rights in the UK, and costs spiral when
business securing rights internationally. These costs are onerous for all businesses, and for SMEs in
particular. The Review recommends:
• better provision of IP information to UK businesses at home and abroad. This

will extend from greater information provided to firms on how to use IP
strategically when they register at Companies House, through stronger
support and better information via the Business Link network, to expert
advice provided by UK Trade and Investment and the Patent Office for UK
firms abroad;
• consulting to enable fast-track litigation to be used in IP cases. This should

mean that capped fees, limited disclosure and time limits will apply to IP
cases, greatly reducing the cost; and
• supporting the establishment of a unitary Community Patent (COMPAT). This

will substantially reduce the cost of patent applications in Europe, which are
currently twice as expensive as in the USA.
Balanced and E.9 Balanced and flexible rights should enable consumers to use material in ways that do
flexible rights not damage the interests of rights holders and will help ensure that citizens have trust in the
system. They will enable cultural institutions to preserve our heritage, and help research
institutes to further knowledge by using ideas protected by others. The Review recommends:
• proposing an ‘orphan works’ provision to the European Commission. This will

make it easier for creative artists to re-use ‘orphan’ copyright protected
material (for which no author can be found), thus unlocking previously
unusable material;
4 The Gowers Review

EXECUTIVE SUMMARY E
• introducing a limited private copying exception, which will allow consumers
to format shift legitimately purchased content, for example music from a CD
to an MP3 player. This will allow consumers to use copyright protected
material in a manner which does not damage the interests of rights holders;
• clarifying the research exception. This will create greater scope for research on
protected material by universities and business and expand the stock of
knowledge; and
• enabling libraries to copy and format shift master copies of archival works.
This will prevent valuable cultural artefacts from deteriorating because they
exist only on outdated formats.
The approach of E.10 The Review takes an evidence-based approach to its policy analysis and has
the Review supplemented internal analysis by commissioning external experts to examine the economic
impact of changes to the length of copyright term on sound recordings, and the question of
orphan works. Both of these reports are published alongside the Review. The Review also
consulted widely with a range of stakeholders in industry, academia and the public sector.
The formal Call for Evidence between March and April 2006 received over 500 responses.
These are listed in Annex B, and those that were not submitted as confidential have been
published on the Review website.
Structure of the E.11 The remainder of the Review is structured into two broad sections. The first half
Review comprises an explanation of what IP is and what it is for, an analysis of recent trends, and an
assessment of how well the current system is performing. The second half considers:
• the instruments of the IP system (patents, copyrights, trade marks and

designs), and makes recommendations to ensure they are balanced, coherent
and flexible;
• the operation of these instruments, and makes recommendations to improve

the way rights are awarded, used and enforced; and
• the governance of the IP system, and makes recommendations to improve IP-

related bodies, such as the Patent Office and the courts.
The full list of recommendations follows.
E.12 Taken together, the package of measures the Review recommends will ensure that the
UK has an IP system that meets the needs of all its users, and which is fit for the digital age.
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E EXECUTIVE SUMMARY
List of recommendations in the Review

Instruments
Balance
Recommendation 1: Amend section 60(5) of the Patents Act 1977 to clarify the research exception to facilitate
experimentation, innovation and education.
Recommendation 2: Enable educational provisions to cover distance learning and interactive whiteboards by
2008 by amending sections 35 and 36 of the Copyright, Designs and Patents Act, 1988 (CDPA).
Recommendation 3: The European Commission should retain the length of protection on sound recordings and
performers’ rights at 50 years.
Recommendation 4: Policy makers should adopt the principle that the term and scope of protection for IP
rights should not be altered retrospectively.
Coherence
Recommendation 5: UKPO should undertake joint working with African patent offices from mid-2007, with the
aim of:
• helping them to take advantage of the flexibilities currently existing in the WTO/TRIPS architecture
where appropriate; and
• encouraging them to make positive use of IP rights through dissemination of information in patents.
Recommendation 6: Encourage the international community under the auspices of the WTO to review the
TRIPS status of the least developed countries prior to 2016 and consider whether further extension for
reaching TRIPS compliance would be appropriate.
Recommendation 7: Government should encourage WTO members to ratify the amendments to TRIPS to
make importation of drugs easier and cheaper.
Flexibility
Recommendation 8: Introduce a limited private copying exception by 2008 for format shifting for works
published after the date that the law comes into effect. There should be no accompanying levies for consumers.
Recommendation 9: Allow private copying for research to cover all forms of content. This relates to the
copying, not the distribution, of media.
Recommendation 10a: Amend s.42 of the CDPA by 2008 to permit libraries to copy the master copy of all
classes of work in permanent collection for archival purposes and to allow further copies to be made from the
archived copy to mitigate against subsequent wear and tear.
Recommendation 10b: Enable libraries to format shift archival copies by 2008 to ensure records do not become
obsolete.
Recommendation 11: Propose that Directive 2001/29/EC be amended to allow for an exception for creative,
transformative or derivative works, within the parameters of the Berne Three Step Test.
Recommendation 12: Create an exception to copyright for the purpose of caricature, parody or pastiche by
2008.
Recommendation 13: Propose a provision for orphan works to the European Commission, amending Directive
2001/29/EC.
Recommendation 14a: The Patent Office should issue clear guidance on the parameters of a ‘reasonable
search’ for orphan works, in consultation with rights holders, collecting societies, rights owners and archives,
when an orphan works exception comes into being.
Recommendation 14b: The Patent Office should establish a voluntary register of copyright; either on its own,
or through partnerships with database holders, by 2008.
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EXECUTIVE SUMMARY E
Recommendation 15: Make it easier for users to file notice of complaints procedures relating to Digital Rights
Management tools by providing an accessible web interface on the Patent Office website by 2008.
Recommendation 16: DTI should investigate the possibility of providing consumer guidance on DRM systems
through a labelling convention without imposing unnecessary regulatory burdens.
Recommendation 17: Maintain policy of not extending patent rights beyond their present limits within the
areas of software, business methods and genes.
Operations
Award
Recommendation 18: The Government should encourage the EPO to pursue work sharing with the USPTO
and JPO.
Recommendation 19: The Patent Office should pursue work sharing arrangements with EPC member States,
and trilaterally with the USA and Japan to reduce cross-national duplication of effort.
Recommendation 20: Continue to support and expedite the establishment of a single Community Patent
through negotiations in Europe.
Recommendation 21: Government should support the London Agreement as an interim step towards
COMPAT, and as an improvement in its own right.
Recommendation 22: Maintain a high quality of patents awarded by increasing the use of ‘section 21’
observations: streamlining procedures and raising awareness.
Recommendation 23: The Patent Office should conduct a pilot of Beth Noveck’s Community Patent Review in
2007 in the UK to determine whether this would have a positive impact on the quality of the patent stock.
Recommendation 24: The Patent Office should develop stronger links with universities and other research
institutions, including through short placements, to ensure that IP examiners are aware of recent
developments in technology.
Recommendation 25a: Introduce accelerated grant process for patents to complement the accelerated
examination and combined patent search and examination procedures.
Recommendation 25b: Introduce fast track registration for trade marks.
Use
Recommendation 26: The Patent Office should provide comprehensive information on how to register and use
IP rights for firms registering with Companies House.
Recommendation 27: Improve SME business IP support by establishing formal collaboration between the
Patent Office and Business Link and by conducting a pilot replicating the French ‘IP Genesis’ scheme.
Recommendation 28: Investigate how best to provide practical IP advice to UK firms operating in foreign
markets, in coordination with industry bodies, the Patent Office and UK Trade and Investment.
Recommendation 29: The Patent Office should develop ‘Business-to-Business’ model IP licences through
industry consultation, and assessment of the Lambert model licences.
Recommendation 30a: The Patent Office should publish and maintain an open standards web database, linked
to the EPO’s esp@cenet web database, containing all patents issued under licence of right.
Recommendation 30b: The Patent Office should publish and maintain an open standards web database, linked
to esp@cenet containing all expired patents.
Recommendation 31: DTI should consider whether guidance for firms on reporting of intangible assets could
be improved, including the provision of model IP reports.
Recommendation 32: Form a working group with Patent Office, RDA and Business Link representation, to
identify and promote best practice to maximise the use of effective schemes nationwide.
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E EXECUTIVE SUMMARY
Recommendation 33: The Review invites the OFT to consider conducting a market survey into the UK
collecting societies to ensure the needs of all stakeholders are being met.
Recommendation 34: Increase cooperation between the UK Patent Office, the Office of Fair Trading and the
Competition Commission to ensure that competition and IP policy together foster competitive and innovative
markets for the benefit of consumers.
Enforcement
Recommendation 35: The Patent Office should continue to raise public awareness, focussing in particular on
the wider impacts of IP crime, and the exceptions to rights.
Recommendation 36: Match penalties for online and physical copyright infringement by amending section 107
of the CDPA by 2008.
Recommendation 37: Monitor success of current measures to combat unfair competition in cases relating to
IP, and if changes are found to be ineffective, Government should consult on appropriate changes.
Recommendation 38: DCA should review the issues raised in its forthcoming consultation paper on damages
and seek further evidence to ensure that an effective and dissuasive system of damages exists for civil IP cases
and that it is operating effectively. It should bring forward any proposals for change by the end of 2007.
Recommendation 39: Observe the industry agreement of protocols for sharing data between ISPs and rights
holders to remove and disbar users engaged in ‘piracy’. If this has not proved operationally successful by the
end of 2007, Government should consider whether to legislate.
Recommendation 40: DTI should consult on measures to tighten regulation of occasional sales and markets by
2007.
Recommendation 41: The Home Office should recognise IP crime as an area for Police action as a component
of organised crime within the updated National Community Safety Plan.
Recommendation 42: Give Trading Standards the power to enforce copyright infringement by enacting section
107A of the Copyright, Designs and Patents Act 1988 by 2007.
Recommendation 43: Strengthen Practice Directions, to provide greater encouragement for parties to
mediate, in particular this should raise the profile of mediation with judges.
Recommendation 44: The Patent Office should consult with the Judicial Studies Board to determine the extent
to which the complexity of IP law may give rise to a training need for judges and magistrates and their legal
advisers.
Recommendation 45: Support the establishment of a single EU court to adjudicate cross-border IP disputes by
promoting the European Patent Litigation Agreement.
Governance
Recommendation 46: Establish a new Strategic Advisory Board for IP policy (SABIP), covering the full range
of IP rights, reporting to the minister responsible, by 2007. The Board should be drawn from a wide range of
external experts as well as key senior policy officials from relevant government departments, and should be
based in London. £150,000 should be allocated to fund the secretariat by the Patent Office.
Recommendation 47: The Patent Office should provide an annual IP strategic analysis fund of £500,000
managed by the policy advisory board in consultation with the IP Policy Directorate.
Recommendation 48: Patent Office should introduce a clear split of responsibility between delivery and policy
directorates.
Recommendation 49: Encourage IP policy officials to obtain policy experience outside the IP Policy Branch, and
support short industry placement schemes for policy staff.
Recommendation 50: Realign UK Patent Office administrative fees to cover costs more closely on Patent Office
administrative operations (e.g. granting patents).
8 The Gowers Review

EXECUTIVE SUMMARY E
Recommendation 51: Increase the transparency of Patent Office financial reporting.
Recommendation 52: Ensure that under current arrangements in the Patent Office, there is a clear internal
separation of responsibility between the granting of rights and disputes over their ownership or validity. This
should be achieved by clearly separating the line management structures.
Recommendation 53: Change the name of the UK Patent Office to the UK Intellectual Property Office (UK-
IPO) to reflect the breadth of functions the office has, and to dispel confusion.
Recommendation 54: DCA should review the issues raised in relation to IP cases and the fast track, and seek
views in the context of its forthcoming consultation paper, which will consider the case track limits, and how
the claims process can be made more timely, proportionate and cost-effective. It should bring forward any
proposals for change by the end of 2007.
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10 The Gowers Review
1 DEFINITION
W H AT I S I N T E L L E C T UA L P R O P E R T Y ?
1.1 Property is simply a bundle of rights to own, use and prevent others from using
something, for example a plot of land, a car or a house. Intellectual Property (IP) is a bundle
of rights that protects applications of ideas and information that have commercial value.1 IP
rights give creators certain exclusive rights over the knowledge and information they create
(e.g. the text of a book) to prevent others using it without permission.
Box 1.1: IP resides in everyday objects
The contents of a jar, the lid and seal may

be protected by patents. Registered and
unregistered design rights can also protect the
lid and shape of the jar. Copyright can protect
the artwork in labels, and trade marks can
protect the shape of the jar, labels, colours used,
and brand names.
Source:The ‘NESCAFÉ Gold Blend’ image is reproduced with the kind permission of Société des Produits Nestlé S.A.
Knowledge is 1.2 Unlike physical property, knowledge, ideas and creations are partial ‘public goods’.
non-rivalrous Knowledge is inherently non-rivalrous. That means one person’s possession, use and
enjoyment of the good is not diminished by another’s possession, use and enjoyment of the
good. As Thomas Jefferson said: “he who receives an idea from me, receives instruction
himself without lessening mine ... as he who lights his taper at mine, receives light without
darkening me”.2 By contrast, physical property is typically rivalrous, with one person’s
consumption preventing simultaneous consumption by another. Privatising property gives
rights over it to a legal individual, creating a legal barrier which prevents others from
accessing it. IP confers a set of time-limited legal rights over the expression and use of certain
ideas. Although the knowledge protected by the IP remains non-rivalrous, the legal force of IP
rights prevents others from using it.
W H Y D O W E N E E D I N T E L L E C T UA L P R O P E R T Y ?
1.3 IP serves three principal functions: to incentivise knowledge (and hence wealth)
creation; to accumulate knowledge in a culture; and to protect a distinctive identity. But those
rights must be balanced in order to achieve these three aims. Listening to the radio, buying a
branded product, taking a medicine and storing food in a fridge are all possible because
inventions and creations have been incentivised through the IP system.
1
Intellectual Property: Patents, Copyright, Trade Marks and Allied Rights, Cornish W. and Llewelyn D., 2003.
2
Letter to Isaac McPherson, Jefferson T., 13 August 1813.
The Gowers Review 11

1 DEFINITION
IP rights provide incentives to create knowledge

1.4 Ideas are expensive to produce but cheap to copy. The fixed costs of producing
knowledge are high. Hollywood blockbusters can costs hundreds of millions of dollars to
make and R&D for drugs can cost billions of pounds. At the same time, the marginal costs of
production, both for drugs and for digital files, are very low. Without protection, others will
free ride on the creator’s initial investment and sell the invention or creation at a much lower
cost. If the innovator knows that someone else can do this easily, there will be no financial
incentive to innovate in the first instance. Clearly, wealth generation is only one motivation
for creativity. For example, Wilfred Owen’s poetry written during the First World War was
motivated by a desire to communicate his experience of war. But without protection there
would be no economic incentive to fund innovation or creativity.
1.5 IP rights create legal barriers to accessing or using knowledge or information by

granting exclusive rights to inventors and creators. These exclusive rights prevent others from
free riding on investment and enable the rights owner to exploit their knowledge or creativity
on the market – thus creating incentives to innovate.
IP rights help to develop public knowledge

1.6 As every creator ‘stands on the shoulders of giants’, it follows that the more knowledge
that is available, the more others can develop and progress. Much of the value from the
inventions and creativity protected by IP can only be realised if that knowledge is widely
accessible to others. To secure an IP right, the idea must be made public, thereby adding to
the common stock of knowledge available for progress.
1.7 Largely for this reason, IP rights are more limited than physical property rights. Patent
applications are required to ‘lay open’ the details of an invention as a condition of grant and the
requirement of disclosure enables others to improve upon existing inventions. After the patent
protection ends, the invention becomes public. For example, Aspirin was patented in 1899 by
the pharmaceutical company Bayer and became a proprietary drug for treating headaches.
The structure of the molecule was published along with the patent, but only the company
owning the patent had the right to manufacture the drug. The patent expired in 1917 and its
formula is now publicly and freely available, allowing research, manufacture or sale of Aspirin
by anyone. If IP rights do not sufficiently secure the ownership of the invention, either the
investment will not be made or alternative tools, such as trade secrets, will be used. In either
case, the public stock of knowledge available for future inventors and creators is diminished.
The costs of IP and the need for balance

IP rights entail a 1.8 The very essence of IP rights entails a trade-off. On the one hand, IP rights provide
trade-off economic incentives to innovate, but on the other, the exclusive rights that they confer to
achieve this allow monopoly prices and associated welfare losses and prevent access by other
innovators. In the short run, this information is largely privatised. In the long run,
information protected by IP rights falls into the public domain and enables follow-on
innovation. So there is a trade-off between incentives on one side and costs to consumers and
limited access for follow-on innovators on the other. It is therefore crucial to have the right
balance in the system.
1.9 Achieving this balance is made more difficult by the vocabulary used to discuss IP
policy and practice. Copyright infringement through unauthorised copying and distribution
of music and video across the Internet is likened to stealing by some, and to sharing by others.
Those who seek to prevent others from using a patented invention without permission are
branded ‘trolls’. Those who copy and distribute material illegally are called ‘pirates’. And the
problem of ‘orphan’ works, which arises where copyright owners are untraceable, perhaps
provokes an easy sympathy.
DEFINITION 1
W H AT A R E T H E F O R M S O F I N T E L L E C T UA L P R O P E R T Y ?
1.10 Several different forms of IP rights have evolved to protect different applications of
knowledge. The four most common are patents, copyright, designs and trade marks; Chart 1.1
summarises the applications to which different rights apply. In practice the situation is more
complex, encompassing different forms of a right (e.g. unregistered and registered designs),
and some other rights that are of their own kind (e.g. semi-conductor rights). These rights are
described in more detail below.
Chart 1.1: The instruments of IP and common applications

Application Application
Simple Literary
e.g. pharmaceutical molecule Graphical
Patent
Complex Videographic Copyright
e.g. microprocessor element Audio
Useful idea Original expression
Knowledge
Distinctive identity
Non-physical application Physical application
Badge of identity for Shape
Trade mark goods or services Configuration Design
e.g. logo, shape, sound, colour Ornamentation
Patents protect 1.11 A patent is a set of exclusive rights granted by the state to a person for a fixed period
useful ideas of time (twenty years in the UK) in exchange for the regulated, public disclosure of certain
details of an invention. The exclusive right granted to a patentee is a negative right that
prevents others from making, using, selling, offering to sell or importing the claimed
invention. However, the right itself does not give the patentee the right to make, use or sell the
invention, and the patentee must still comply with other laws and regulations. For example,
a patent on a drug does not give the right to sell that drug in the UK without a licence from
the Medicines and Healthcare Products Regulatory Agency or the European Commission.
Products eligible for patent protection must:
• be novel; the invention must never have been made public in any way,
anywhere in the world, before the priority date (normally the date on which an
application for a patent is filed);
• involve an inventive step; an invention involves an inventive step if, when

compared with what is already known, it would not be obvious to someone
skilled in the relevant art;
• be capable of industrial application; an invention must be capable of being

made or used in some kind of industry; and

1 DEFINITION
• not be ‘excluded’; an invention is not patentable if it is: a discovery; a scientific

theory or mathematical method; an aesthetic creation such as a literary,
dramatic or artistic work; a scheme or method for performing a mental act,
games or business methods; the presentation of information; or a computer
program; but these things are only excluded when the claim relates to them ‘as
such’.
1.12 The requirements that an invention must meet in order to be patentable aim to
achieve the balance between access and incentive described above. For example, a
mathematical theory might be useful and capable of industrial application, as in recent
advances in number theory for cryptography, but it would be unpatentable because of the
potential benefits that might accrue from the basic ‘building blocks’ of research being
publicly available.
History of 1.13 Patents have evolved over many years. The earliest known English patent for an
patents invention was granted by Henry VI to John of Utynam in 1449. The patent gave John a twenty
year monopoly for a method of making stained glass, required for the windows of Eton
College. Under the Tudors it became common practice for the Crown to grant monopolies for
trades and manufacturers, including patents for invention. Public disclosure for patents
became a general requirement in the eighteenth century, and the Patent Act 1902 instituted a
limited examination into the novelty of the invention before a patent was granted. The
principal piece of domestic legislation currently governing patents is the Patents Act 1977.
Copyright 1.14 Where a work is protected by copyright it cannot legally be reproduced, distributed,
protects original communicated to the public, lent, rented out or publicly performed without the consent of
expression the owner. Copyright subsists in a wide range of creative or artistic forms or ‘works’, including
poems, plays and other literary works, movies, choreographic works, musical compositions,
audio recordings, paintings, drawings, sculptures, software, radio and television broadcasts.
1.15 There is no official register for copyright in the UK. Copyright comes into effect
automatically and without any necessary process as soon as something that can be protected
is created and ‘fixed’ in some way, e.g. on paper, on film, as a sound recording, or as an
electronic record on the Internet. Copyright law covers the way in which the work is
expressed, rather than the idea behind the work. So Dan Brown’s The Da Vinci Code was
recently found not to have infringed the copyright of an earlier book which contained many
of the theories found in The Da Vinci Code. Drawing on ideas of other copyrighted works does
not infringe those copyrights.
1.16 Exceptions to copyright exist to rectify two problems. The first is transaction costs.
There are uses of copyright protected material for which it would be too costly and too time
consuming to clear the rights, for example in a book review. Second, there are issues of equity.
Copyright prevents the copying and communication of literary works. In the absence of
exceptions, copying a text into Braille would be infringing copyright. To deal with such cases
‘fair dealing’ legislation exists, which creates a space in which it is not illegal to infringe
copyright. Exemptions include: news reporting and criticism; copying for blind users;
copying for non-commercial private research under library privilege; copying for
preservation; and copying and communication for education.
History of 1.17 Copyright was first established in the Statute of Anne in 1710, which declared that
copyright copyright comes into existence with the act of composition by an author3 and is accorded to
the author. The author could then transfer their right to a publisher for fourteen years, which
could be extended for another fourteen years should the author still be alive. In 1774, the
House of Lords ruled in Donaldson v. Beckett that perpetual copyright was illegal: they
3
The Reading Nation in the Romantic Period, St Clair W., 2004.

DEFINITION 1
concluded that no natural law of copyright existed and that copyright was a purely statutory
right created for the utilitarian purpose of encouraging literary efforts.4 However, throughout
the nineteenth and twentieth centuries, copyright was extended and the scope of protection
was broadened under pressure from publishers and as a result of international
harmonisation. The principal piece of domestic legislation currently governing copyright is
the Copyright, Designs and Patents Act 1988.
Trade marks 1.18 A trade mark is a badge of origin for goods or services; it can be a word, name, logo,
protect colour, sound or shape. Once registered it gives the right to prevent others from using the
distinctive same or similar marks on the same or similar products. By providing a distinctive identity for
identity a product or service, trade marks lower the search costs for consumers by providing them
with information about the nature and quality of the product; this also gives brands an
incentive to build up good reputations and to develop brand loyalty.
1.19 Trade marks lose protection when they cease being used or become generic, i.e. when
a brand name comes to stand for a general class of items. For example ‘escalator’ and
‘gramophone’ were both marks that were afforded protection. In Austria, Sony no longer has
exclusive rights to the term ‘Walkman’, and in Australia ‘Linux’ is no longer eligible for
protection. Firms are keen for their trade marks not to become generic: Google recently wrote
to media outlets warning against inappropriate use of its trade mark for fear of losing
protection for its brand.
1.20 Marking of goods for various purposes, including distinguishing them from those of
other traders, dates back to ancient times. In the nineteenth century people began to think of
marks, which had become distinctive to a trader’s goods and so attracted valuable goodwill,
as a type of property. The Trade Marks Act 1905 gave the first statutory definition of a ‘trade
mark’. The principal legislation governing UK trade marks is the Trade Marks Act 1994.5
Designs protect 1.21 A registered design protects the appearance of the whole or part of a product,
graphical including its shape, configuration and ornamentation. Such protection lasts up to a
identifications maximum of 25 years. To qualify for registration, a design must be new and have individual
character, which means that the overall impression it produces on an informed user of the
design must differ from the overall impression produced on such a user by any design which
has already been made available to the public. Examples include floral or other decorative
patterns, or the shape of a product.
History of trade 1.22 Design law was originally introduced with the Designing and Printing of Linen Act in
marks 1787. This gave the owner two months’ exclusivity in the printing of designs on linen and
other fabrics. The Copyright and Design Act 1839 increased protection to every new or
original design and introduced a system of registration. Since then, the boundaries of design
protection have been gradually extended. In the UK registered designs are governed by the
Registered Designs Act 1949 and unregistered designs by Part 3 of the Copyright, Designs and
Patents Act 1988. In addition, a Community Design right (both registered and unregistered)
was introduced by Council Regulation 6/2002 on the Community Design. The Community
regime has begun to supplant the domestic design right as a way of protecting designs.
4
(1774) 4 EURR 2407 Law Professors’ Amici Brief in “MPAA v. 2600” CaseBrief Amicus Curiae in Support of Defendants-
Appellants, Supporting Reversal; Universal v. Reimerdes (Jan. 26, 2001) see Understanding the Copyright Clause,
Patterson L.R., Journal of the Copyright Society, 2000.
5
In 1995 the European Community introduced Community Trade Marks with (EC) Regulation No. 40/94 on the
Community Trade Mark.

1 DEFINITION
Sui generis rights 1.23 The rights described protect a broad range of innovations and creations. For some
protect specific applications, such as plant varieties, semi-conductor topographies and databases, separate,
types of specific rights, known as sui generis, or of their own kind rights, have been developed which
inventions better suit the attributes of those applications and the needs of the industry.
W H O U S E S I N T E L L E C T UA L P R O P E R T Y ?
1.24 In short, everyone uses IP. The Review’s Call for Evidence elicited over 500 responses
from industry, academia, creators, inventors, consumer groups and members of the public.
1.25 Industries such as pharmaceuticals, biotechnology and high-tech rely heavily on

patent protection to produce commercially viable products. Universities may patent
inventions created in laboratories, and license technology to commercial companies. IP
forms a link between those who invent and those who wish to bring new products to market.
1.26 The creative industries use IP to protect against the misuse of the expression of ideas
and works of art. In particular, there has recently been a great deal of attention given to the
downloading of music, and to a lesser extent films, and to protecting artists against copyright
infringement. There are many other owners and users of copyright who gain permission from
the artist to use works in films, television programmes and so on. A rise in user-led
innovation, which allows users to both use and create artistic products, has driven a rise in
creative outputs.
1.27 Consumers benefit from IP not only from the stream of innovative products and
inventions and creativity that would not otherwise be created by firms, but also from the
rights that protect the identities of well known goods and services. Trade marks act as
signposts of quality, preventing other firms passing off one make of good as being the same
as another.
1.28 Increasingly, firms are using overlapping IP rights to protect their products. For
example, new bands, whose artistic output will be protected by copyright, will often trade
mark their name so that when their works fall out of copyright protection, their brand will still
entitle their estates to some remuneration.
H O W I S I N T E L L E C T UA L P R O P E R T Y G OV E R N E D ?
1.29 A web of UK, EU and international bodies manage the framework for the IP rights
described above, and the operations associated with those rights (e.g. examining the novelty
of a patent claim). The following sections outline the various UK, European and international
bodies responsible for developing IP policy.
IP governance in the UK
1.30 The current UK IP policy governance map is complex, with policy divided between
UK processes and EU/international processes. Within the different IP rights of patents,
copyright, trade marks and designs, some aspects are purely within national competence,
some purely within EU competence and some are a mixture of the two. Chart 1.2 shows the
current UK IP governance map.

DEFINITION 1
Chart 1.2: IP policy governance

DTI
New legislation with UKPO: Other Government
Other stakeholders
Public interest Office of Science and departments
Industry
Members of public Innovation (OSI) Policy links
Non-governmental
Competition authorities Creative industries e.g. DCMS (creative industries)
organisations
Fair markets DCA (courts)
Biotechnology
UK policy process
UK courts UK Patent Office (UKPO)

IP disputes UK IP •IP policy lead; making new legislation (with DTI)
Appeals from UKPO system •Administering patent-granting process; trade
Interpretation of IP law mark and design registration
•Tribunal, dispute resolution
European Court •Innovation support activities
of Justice UK Parliament •IP enforcement
and IP legislation
Court of
First Instance
EU/International Policy Process
EU OHIM EPOrg WTO WIPO

Mixed competence Administer Community Responsible for EPC Responsible for TRIPS Responsible for various treaties
for Trade Mark and Community Running EPOff (setting minimum (e.g. PCT, PLT, Paris Convention)
IP and competition Design appeals to Court (grants EP(UK)) requirements and administering PCT for
issues of First Instance and EPO decisions persuasive, not for IP system) international applications
European Court of Justice binding on UK courts
The Patent Office 1.31 The UK Patent Office is an Executive Agency of the Department of Trade and Industry
(DTI), and since 1991 has been a Trading Fund. The Patent Office is responsible for all the
main IP instruments, and not just for patents as its name implies. The principal functions of
the Patent Office are:
• award: granting UK patents as well as registering UK trade marks and designs;
• awareness: responsibility for raising awareness of IP-related issues among

businesses and consumers;
• policy: advising ministers on IP policy;
• tribunal function: Patent Office has a role in deciding disputes in respect of

patents, trade marks and both registered and unregistered design rights; and
• enforcement: leading the development of the UK IP crime strategy.
1.32 The function and organisation of the Patent Office is described in greater detail in
Chapter 6.

1 DEFINITION
IP governance in Europe
1.33 Much domestic legislation over the past 30 years has been driven by UK compliance
with EU and international obligations, such as Patents Acts in 1977 and 2004, to bring the UK
into line with the European Patent Convention.
The European 1.34 The European Patent Organisation was created in 1977 to grant patents in Europe
Patent under the European Patent Convention of 1973. The European Patent Organisation has two
Organisation organs: the Administrative Council, which acts as the legislative body; and the European
Patent Office (EPO) in Munich, which acts as the executive body. The Administrative Council
is made up of members of the contracting states and is responsible for overseeing the work of
the Office, ratifying the budget and approving the actions of the President of the Office. The
EPO grants European patents for the Member States of the European Patent Convention. The
EPO provides a single patent grant procedure, but not yet a single patent from the point of
view of enforcement. Hence the patents granted are not European Community patents or
even Europe-wide patents, but a bundle of national patents.
European 1.35 The UK’s IP laws have now been harmonised to a substantial degree by EU Directives.
Community Indeed, the substantive law of registered designs and registered trade marks is now almost
entirely determined at the Community level.6 In relation to copyright, the harmonisation is no
where near as complete, nevertheless the term of copyright7 and most exclusive rights are
harmonised8 as is the maximum scope of the exceptions9 as well as many other aspects of
copyright law. The Community has not been so active in the area of patent law, although it has
harmonised the treatment of biotechnological inventions10 and tried to do the same for
computer implemented inventions.11 In recent years it has also set minimum standards in
relation to the civil enforcement of IP rights12 and is presently trying to do the same for
criminal enforcement.
International IP governance
WIPO 1.36 The World Intellectual Property Organization (WIPO) began in 1893 as BIRPI
(Bureaux Internationaux Réunis pour la Protection de la Propriété Intellectuelle), or the
International Office for the Protection of IP. It brought together the early conventions on
patents and copyright harmonisation, namely the Paris Convention for the Protection of
Industrial Property (1883) and the Berne Convention for the Protection of Literary and Artistic
Works (1886).13 It was reconstituted in 1974 as a UN agency. WIPO serves as a body for
negotiating and mangaging the various international IP treaties. It now administers a number
of important treaties in addition to Paris and Berne. Of these other treaties, the UK is a party
to the (Rome) International Convention for the Protection of Performers, Producers of
Phonograms and Broadcasting Organisation (1961)14 and has agreed to become a party to the
WIPO Copyright Treaty (WCT) and the WIPO Performance and Phonograms Treaty (WPPT).
The effect of these conventions and treaties is to require the UK to provide national treatment
(meaning the same treatment for foreigners and nationals) and certain minimum standards
to nationals of other contracting states. These standards include:
6
Directive 89/104/EC to approximate the laws of trade marks effectively harmonised substantive trade mark law, leaving
only minor matters and procedural matters to Member States. Similarly, Directive 98/71/EC on the legal protection of
designs did much the same for designs.
7
Directive 93/98/EEC harmonising the term of protection of copyright.
8
See Directive 92/100/EEC on rental and lending right and certain related rights as well as Directive 2001/29/EC on
copyright in the information society.
9
Article 5 of Directive 2001/29/EC.
10
Directive 98/44/EC on the legal protection of biotechnological inventions.
11
The proposal was eventually defeated by the European Parliament in July 2005.
12
Directive 2004/48/EC on the enforcement of intellectual property rights.
13
The UK is also a party to the UNESCO Universal Copyright Convention (last revised 1971).
14
The UK is also party to the less significant Convention for the Protection of Producers of Phonograms Against
Unauthorised Duplication of their Phonograms (1971).

DEFINITION 1
• the minimum term of copyright and related rights;
• the minimum rights that must be granted to authors, performers, broadcasts

and phonogram producers; and
• the maximum scope of the exceptions that are permitted in relation to certain
rights.
1.37 In addition, WIPO plays a key role in the administration of the Patents Cooperation
Treaty system, the Madrid Agreement and Protocol for trade marks and the Hague Agreement
for designs. These treaties provide a mechanism for making a single application for
protection of patents, trade marks and designs. Although in each case the application leads
to a bundle of national rights.
1.38 The UK makes representations to WIPO through the Patent Office. The objectives of
WIPO are to:
• promote the protection of IP throughout the world through cooperation

among Member States and, where appropriate, in collaboration with any
other international organisation; and
• ensure administrative cooperation among the unions.15
WTO 1.39 World Trade Organization (WTO) involvement in IP is through the Trade-Related
Aspects of Intellectual Property Rights Agreement (TRIPS), which was agreed at the Uruguay
Round of the WTO negotiations. It came into effect in 1995 with the overall objective of
reducing “distortions and impediments to international trade, promotion of effective and
adequate protection of IP rights and ensuring that measures and procedures to protect IP
rights do not themselves become barriers to legitimate trade”. Its principal areas of
competence are:
• standards – TRIPS sets out minimum standards in relation to the subject

matter that must be be covered by each type of IP right as well as the
minimum term for trade marks and patents; it also sets out the maximum
scope of permissible exceptions. It requires all countries to come up to
compliance with substantive elements of Berne and Paris, with exception to
terms of Berne on moral rights;
• enforcement – certain general principals of enforcement are laid down for all
countries so that rights holders can effectively enforce their rights; and
• dispute settlement – the agreement makes disputes between WTO members

around TRIPS obligations part of the WTO dispute settlement procedures.
Between TRIPS coming into effect in 1995 and 2004, 24 disputes were brought
to the TRIPS council.
O T H E R M E T H O D S T O I N C E N T I V I S E I N N OVAT I O N
1.40 While this report principally deals with IP rights, they are only one method of
spurring innovation. As Table 1.1 below indicates, other commercial strategies like
confidentiality agreements and being first to market are often perceived to be more
important. The examples given below are important not only in their own right, but also
because they illustrate the balance that IP strikes (as described earlier in the chapter) between
private incentives and public accessibility.
15
Article 3 Convention Establishing the World Intellectual Property Organization.

1 DEFINITION
Table 1.1: Enterprises rating different methods for protecting innovation

as being of ‘high’ importance
Percentage of respondents
Size of enterprise: employees
10–250 250+ All 10+
Formal
Confidentiality agreements 11 22 11
Trade marks 6 16 6
Copyright 6 10 6
Patents 5 13 5
Registration of design 4 11 4
Strategic
Lead-time advantage on competitors 9 17 10
Secrecy 8 19 9
Complexity of design 5 9 5
Source: First findings from the UK Innovation Survey, 2005.
Secrecy 1.41 The main mechanism used as an alternative to formal IP is the trade secret. Examples
of knowledge protected by trade secrets include: a formula; practice; process; pattern; or
compilation of information which is protected so that the holder can gain economic benefits
derived from the secrecy of the information. Unlike patents, designs or copyright, trade
secrets are protected without any disclosure. In addition, reasonable efforts must be taken to
keep the information a secret, such as Non-Disclosure Agreements for new employees. The
most famous example of a trade secret is Coca-Cola, which has not patented its recipe. While
there are provisions to protect the owner if the secret is uncovered by improper or unlawful
means, the state provides little protection if the trade secret is exposed through reverse
engineering or independent duplication.16
Patronage 1.42 Under patronage a private or public body pays an individual to ‘think interesting
thoughts’, in the hope that some of these ideas will have a practical or artistic application.
Patronage has been used since ancient times. For example, Dionysius supported scientists
while they developed military technology, including the catapult, and patronised Archimedes
while he worked on his theory of buoyancy. Contemporary patronage usually takes the form
of a research grant, with money available from the state or from private foundations; for
example, the Gates Foundation has invested in pharmaceuticals to combat the spread of
HIV/AIDS.
Prizes 1.43 Prizes have also been used to provide an incentive for innovation and can be provided
ex-ante, for example the Longitude Prize set in 1714 by the English Parliament, or ex-post, for
example the Nobel Prizes. Both patronage and prizes can interact with IP rights (for example,
a patron might require the rights to an invention before granting the prize), but often they are
independent and serve to provide knowledge for public benefit.
16
Innovation and Incentives, Scotchmer S., 2004, cites a survey of IP Owners Association member firms (Survey Results
from the 2003 Intellectual Property Owners Association Survey on Strategic Management of Intellectual Property;
Cockburn I., and Henderson R., 2003.) which showed that 80 per cent believe competitive advantage would be eroded
without trade-secrecy compared with only 66 per cent without patents and 33 per cent without copyright.

DEFINITION 1
Open source 1.44 A recent and radical approach to knowledge accumulation rejects the propertisation
of knowledge. The approach of ‘open source’ is for creators to allow open access to their
products, ideas and inventions, enabling information to be freely shared and developed. This
keeps transaction costs low and has allowed user-driven innovation to flourish. Examples of
open source projects include the Linux operating system and the Firefox Internet browser.
The incentive mechanism for contributors is reputation. However, open source has some
serious limitations; for example, the incentive mechanism is usually financially weaker than
using IP in its conventional commercial form and hence contributors often rely on
supplementary sources of income. When the definition is stretched to applications other than
software development, there is the potential for a number of new applications for generating
ideas outside of an ‘IP’ framework.17 For example, Science Commons has extended this
general approach to foster the availability and distributed processing of scientific data.18
1.45 For commercial and industrial applications, IP has grown to eclipse all but the trade
secret as a wealth creation mechanism.19 The condition of disclosure means that IP brings a
greater amount of information that might enable future innovation into the public domain
than the trade secret would. The monopolies that IP rights grant allow rights holders to charge
high prices, but those rights provide firms with the incentive to supply what consumers
demand. If IP rights are balanced, coherent and flexible, the system will support greater
investment in R&D and will allow the access to knowledge that will stimulate future
innovation.
C O N C LU S I O N
1.46 This chapter explained what IP is and why it exists. Chapter 2 describes the economic
and technological changes that have created opportunities and challenges for innovation and
creativity and looks at how the IP framework has responded.
17
Wide Open, Mulgan G. and Steinberg T., 2005.
18
www.sciencecommons.org.
19
Innovation and Incentives, Scotchmer S., 2004.

2 CHALLENGES AND OPPORTUNITIES
2.1 The UK Intellectual Property (IP) framework has developed in recent years against a
backdrop of profound change including rapid globalisation and technological change. Both
have presented significant economic opportunities and significant challenges to the IP
system. As a result of these changes IP rights have become increasingly important in
promoting innovation, but many of the environmental challenges facing the IP system have
yet to be addressed.
2.2 This chapter summarises the changing context for those using IP rights and the
implications of those changes. It then sets out the policy responses that have been made to
address those challenges, and where problems still remain.
G LO B A L I S AT I O N
Greater trade 2.3 Globalisation is a term used to indicate the growing economic interdependence of
countries throughout the world. The trend towards global trade and outsourcing, as indicated
by rising trade and capital flows (see Chart 2.1 below), is both a feature and a driver of
continuing globalisation. From 1980 to 2002, trade in goods increased from $130 billion to
$6,400 billion.1
Chart 2.1: Trends in world foreign direct investment (FDI),

exports and Gross Domestic Product (GDP)
6,000
(Index: 1970=100)
5,000
4,000
3,000
2,000
1,000
0
1970 1980 1990 2004
FDI Exports GDP
Source: IMF WEO and UNCTAD, 2005.
Larger markets 2.4 The increase in global trade has created larger markets for UK-based firms. For
and increased example, income and population growth have increased the size of the world market by a
competition factor of four since 1950.2 These wider markets also bring the challenge of increased
competition with innovative international firms driving productivity growth in many sectors.
1
Development and Globalisation: Facts and Figures, United Nations Conference on Trade and Development, 2004.
2
Intellectual Property in a Global Economy, Boldrin M. and Levine D., 2004.

2.5 Larger markets and fiercer competition present both opportunities and challenges
for UK businesses. There are greater rewards for the most innovative firms to compete in ever-
larger markets. And there are greater pressures on firms to innovate to survive or compete in
increasingly competitive global markets. Innovation is therefore key to rising to the
challenges and seizing the opportunities of globalisation.
2.6 As a consequence, the role of IP in incentivising that innovation has never been more
important. But, just as globalisation presents challenges to business, so it also presents new
challenges for the IP system itself. Globalisation:
• may shift the optimal balance in IP rights – the optimal length of IP protection
from an economic perspective would be just long enough for the innovator to
recoup his initial investment. Any longer, and the monopoly prices that IP
allows are an unnecessary inefficiency. As the size of the market increases,
more products can be sold in the same amount of time. This has led some
economists to argue that terms of protection should be reduced in order to
maintain a balance between consumers and producers;3
• generates new enforcement risks – the increase in legitimate trade has been
accompanied by an increase in counterfeiting and other forms of illegal trade.
Customs officers in the EU seized 100 million counterfeit and pirated items
such as CDs, luxury clothing and perfume in 2004, a tenfold increase on 1998
figures;4 and
• raises the problem of jurisdiction – the harmonisation of national IP laws has

lagged behind the integration of markets. While technology allows firms to
market products globally, licensing the IP rights separately in every national
jurisdiction imposes significant additional costs on business in applying for,
licensing and enforcing IP rights.
IP policy responses to globalisation

Patents 2.7 Notwithstanding these changes, in the UK and internationally patent law generally
remains at the individual country level, so a patent granted in one country does not
automatically apply internationally. The problems this causes were first considered in the late
nineteenth century, which ultimately led to the signing of the Paris Convention. However,
greater strides were made in the twentieth century: not only was the Convention amended a
number of times, but in 1970 the Patents Cooperation Treaty (PCT) was adopted. The effect of
this treaty was that a single patent application could be made, which in effect notifies
signatory countries of the applicant’s intent to file nationally. As Chart 2.2 suggests, this has
proved popular, but it still requires the applicant to prosecute the application separately at
each national office during the so-called ‘national phase’.
3
Intellectual Property and the Scale of the Market, Boldrin M. and Levine D., 2004.
4
Counterfeiting and piracy: Frequently Asked Questions, European Commission Press Releases, 2005.

CHALLENGES AND OPPORTUNITIES 2
Chart 2.2: Demand for patent rights worldwide 23,497,954
17,062,058
14,744,746
12,527,841
10,068,860
7,451,674
20,599,488
14,644,800
12,294,536
10,011,805
7,659,426
5,265,755
1999 2000 2001 2002 2003 2004
Total PCT
Source: Trilateral Statistical Report, 2004 and 2005.
2.8 For over 30 years, there has been the ambition to create a unitary ‘Community Patent’
for Europe to reduce costs for business. There have been many failed attempts to broker
agreement. The most recent attempt failed over the issue of the legal status of translation of
the claims of the patent. The ‘London Agreement’ contains proposals that would simplify the
translation requirements of the current regime, but it has not yet been ratified by sufficient
Member States to take effect.
2.9 Separately, the European Patent Litigation Agreement (EPLA) is being discussed as an
integrated judicial system with uniform rules of procedure and a common appeal court for
patent litigation throughout Europe. This was first suggested in 1999 but continues to face
difficulties.
2.10 Some international differences are the result of continuing disagreements over the
optimal policy. For example, the USA provides patent protection for business methods as a
spur to innovation in enterprise. In contrast, policy makers within the EU have to date seen
business method patents as unnecessary, and even inimical to business innovation.
Copyright 2.11 For copyright, as with patents, the rights exist individually in each country. However,
various Conventions have set minimum standards of protection that must be afforded to
creators. The original, and still most important convention, is the Berne Convention, which
gives protection to the authors of works. It now has 162 signatories, including the UK. The
adoption of the World Intellectual Property Organization (WIPO) Copyright Treaty in 1996
created further minimum levels of protection for authors. This, in combination with the
Trade-Related Aspects of Intellectual Property Rights Agreement (TRIPS), means that authors
enjoy a very high level of protection worldwide. The owners of related rights (e.g. performers,
producers of sound recordings and broadcasters) are also protected by international treaties,
namely the Rome Convention and the WIPO Performances and Phonograms Treaty (WPPT).

2.12 At the EU level, there have been substantial moves towards harmonisation of
copyright and related rights. Most notably, in 1995 the term of protection was harmonised.
Nevertheless, differences remain between the Member States in, for example, what
constitutes a film or the standard of originality.
Trade marks and 2.13 As noted in Chapter 1, within the EU, trade mark law has been harmonised by the
designs Trade Marks Directive,5 and a Community Trade Mark (CTM) has been introduced.6
Internationally, UK firms benefit from the Madrid Protocol 7 which provides a
semi-integrated mechanism for obtaining trade marks globally. Similarly, the law of registered
designs has also been harmonised across the Community8 and in 2002 unregistered and
registered Community Designs were introduced.9 In relation to designs there is also a treaty,
the Hague Agreement, which enables a designer to obtain global protection more easily,10
Both the Community Design and the Community Trade Mark provide a relatively cheap and
effective mechanism for achieving protection throughout the Community.
WTO / TRIPS 2.14 The most significant recent developments in IP policy have centred on the World
Trade Organization (WTO) with the signing of TRIPS in 1994. Looking to reduce barriers to
trade, the signatories set out a timetable for all WTO signatories to reach minimum standards
covering all IP rights. This includes undisclosed information and minimum standards for
enforcement, and remedies to be available for the infringement of rights.
Piracy and 2.15 In addition to simplifying the process of obtaining rights, international efforts have
counterfeiting also sought to tackle piracy and counterfeiting. The laws relating to the criminal infringement
of copyright and trade marks have both been tightened over recent years. Recently the
Enforcement Directive 11 came into force, strengthening civil sanctions, and a second directive
dealing with criminal sanctions has been proposed by the European Commission and is
currently being negotiated.
T E C H N O LO G I C A L C H A N G E
2.16 Rapid technological change over the last thirty years has provided an enormous
number of new and innovative goods and services. This has simultaneously provoked many
challenges for UK policy, not least concerning IP. This section describes three substantial
technological shifts that have affected the IP system, and how policy has altered as a result.
First, the digitisation of information and the ability to store it electronically has made it far
easier to copy, distribute and reverse engineer products. Second, the innovation process has
become more networked and complex, with greater collaboration between firms, and with
high-tech projects often requiring the combination of thousands of individual IP rights.
Third, new technologies such as genetics, software and databases require IP protection but do
not fit easily into existing categories.
5
Directive 89/104/EEC to approximate the laws of the Member States relating to trade marks.
6
Council Regulation (EC) No. 40/94 on the Community Trade Mark.
7
The Protocol relating to the Madrid Agreement which was adopted in 1989. The UK has never been a party to the
Madrid Agreement itself.
8
Directive 98/71/EC on the legal protection of designs.
9
Council Regulation (EC) No. 6/2002 on the Community Design.
10
Although the UK is not a party to the Agreement, the EU is in the process of ratifying it and when it does so it will give
British businesses the right to use the mechanism.
11
Directive 2004/48/EC on the enforcement of IP rights.

Digitisation
2.17 Digital technology is increasingly common in UK households. The ownership of
home computers rose from 21 per cent of households in the UK in 1991 to 58 per cent in
2003.12 The capability of digital communications has also developed rapidly. In April 2003,
8 per cent of British households had a broadband Internet connection, which had risen to
31 per cent by July 2005. The number of subscribers is expected to pass 12 million by 2008, as
shown in Chart 2.3 below, by which time the UK is expected to have the largest number of
broadband subscribers in Europe.13
Chart 2.3: UK broadband household penetration estimates

80
Per cent
70
60
50
40
30
20
10
0
2005 2006 2007 2008 2009 2010
Source: Ovum, January 2006.
Unauthorised 2.18 As Chart 2.4 illustrates, high-speed digital networks are expanding the digital
copying distribution for films, music and games, but the ability to copy and distribute information at
virtually zero cost has also made it much easier to copy that information without permission
from the copyright owner. ‘Piracy’ of protected material has always been a concern for rights
holders. However, the unprecedented technological advances of the last decade or so mean
that it has become an even more pressing threat. Downloading music and films from the
Internet is now the most common legal offence committed by young people aged between 10
and 25 in the UK .14 Up to 80 per cent of music downloads are not paid for 15 even though most
consumers recognise it to be illegal.16 According to a report commissioned by the British
Phonographic Industry (BPI), file-sharing cost the music industry £414 million in lost sales in
2005,17 on total retail sales of £1.87 billion.18 These losses have risen steeply from £278 million
in 2003.
12
Office of National Statistics.
13
Screen Digest Research: European Piracy Fact Sheet, 2004 (accessed at http://www.mpaa.org/piracy.asp).
14
Fraud and Technology Crimes, Home Office, 2006 – http://www.homeoffice.gov.uk/rds/pdfs06/rdsolr0906.pdf.
15
Observer Music Monthly (UK Downloaders, July 2005).
16
OTX presentation, January 2006: 63 per cent of downloaders recognised that downloading was illegal, 19 per cent
were not sure.
17
TNS, 2006, commissioned by BPI.
18
DCMS data, 2006.

Chart 2.4: Downloads share of singles sales in the UK by week

2004-2006
90
Per cent
80
70
60
50
40
30
20
10
0
2004 2005 2006
Source: British Phonographic Industry.
2.19 In response to this ever-greater ease of copying files, firms have developed
technological protection systems that use encryption to restrict access to the film or music
file. This prevents users from copying DVDs to their personal computers, and is also
commonly used to disable the fast-forward button during the initial minutes of a DVD film.
The use of Technical Protection Measures (one type of Digital Rights Management) has been
partially successful at reinstating technical impediments to copying media, but it has faced
consumer opposition and software tools to ‘crack’ the protection are widely available on the
internet.
Reverse 2.20 Reverse engineering is the process of discovering the technological principles of an
engineering application or device through analysis of its structure, function and operation. It has
historically been difficult, but it is becoming easier for two reasons:19
• as engineering techniques become more computerised, more of the design

relies upon pre-programmed libraries of components. Therefore, recognisable
blocks of code or groups of circuit elements often occur in many designs
developed using the same computer program. These are easier to recognise
and interpret than a customised product; and
• artificial intelligence techniques for pattern recognition have advanced to the

point where these blocks of code and other structures within a product can be
recognised automatically.
2.21 Reverse engineering is often a necessity for reliable computer software design and
thus has become more important in recent years with the increased development of software.
But these changes also make it easier to copy and appropriate the IP within software and
other applications, which costs firms sales.
19
Reverse Engineering, Musker D., Protecting and Exploiting Intellectual Property in Electronics, 1998.

Networked innovation
Collaboration has 2.22 Technological change has also enabled innovation to become increasingly
increased collaborative. In traditional models of innovation, firms undertook most of their research and
development in-house. IP was occasionally sought for new inventions, but often the
inventions were kept secret. In this ‘closed’ model, if a firm could not utilise an innovation in
an end product it was lost.20
Chart 2.5: Models of innovation

'closed' 'open'
Research Development Research Development
Time Time
Traditional model: unused research Greater collaboration: less research wasted

Source: QuickMBA.com.
2.23 Increasingly firms are adopting an ‘open’ approach to innovation, licensing useful
technologies from (‘in-licensing’) and to (‘out-licensing’) other firms,21 as shown in Chart 2.5
above. This model means that firms capture the value of ideas even if they do not use them in
an end product, which in turn increases the incentives to innovate. IP allows this sharing by
conferring property rights and enabling a market to form. Firms are increasingly licensing IP
as they focus on more specialised components. This approach can be seen in the
telecommunications industry, where a typical mobile phone now contains thousands of
patented inventions and requires collaboration between hundreds of companies. Some firms,
such as ARM in Cambridge, do not produce any physical product and are entirely funded by
income from licensing. As Chart 2.6 shows, pharmaceutical companies are spending
increasing proportions of their R&D budgets on licensing and this is projected to increase.
Licensing is 2.24 Efficient licensing ensures liquidity in the market for ideas. However, licensing
costly patents can be complicated and costly. It is estimated that 15 per cent of patents granted in
the UK are ‘sleeping’: the owner is willing to license but is prevented by the associated legal
costs.22 The Institute of Patentees and Inventors report that around 95 per cent of attempts to
licence IP by individuals or SMEs result in failure.23 Large corporations can utilise greater in-
house IP knowledge and the bargaining power of a large IP portfolio when completing
licensing negotiations, generally leading to a greater success rate.
20
“Open Innovation” Myths, Realities, and Opportunities, Chesbrough H., 2006.
21
Open Innovation: The New Imperative for Creating and Profiting from Technology, Chesbrough H., 2002.
22
IPR at the Crossroads – Economic Value of IPR for Business in the Internal Market, Nooteboom E., 2006.
23
Call for Evidence submission, Institute of Patentees and Inventors.

Chart 2.6: Licensing spending as percentage of pharmaceutical

R&D spending
100
Percentage of pharmaceutical companies 90
80
70
60
50
40
30
20
10
0
1999 2004 2009 (projected)
More than 20 per cent 10 to 20 per cent Less than 10 per cent
Source: McKinsey survey of large pharmaceutical companies, 2004.
Patent pools 2.25 In response to the growing need to licence technology and the associated transaction
reduce licensing costs, firms have used patent pools as a mechanism to manage large numbers of rights
costs together. The case study below illustrates how this has worked for one technology.
Box 2.1: Case Study – RFID patent pool a

A patent pool has been constructed by a consortium of twenty providers of the new
technology of radio frequency identification (RFID). The pool is intended to reduce the
confusion over patent royalties, reduce risks for end users and provide a convenient way
for rights holders to manage their IP. The consortium charges one royalty fee and divides
the revenue among the patent holders according to the rights held. This is likely to keep
the cost of RFID equipment down, which will encourage adoption by consumers. To join
the pool, a company or individual must hold patents deemed essential to the relevant
standard.
a
RFID Vendors to Launch Patent Pool, Roberti M, RFID Journal, 2005.
2.26 Worldwide revenues from patent licensing increased from $15 billion in 1990 to $110
billion in 2000.24 The BBC reports that £230 million is spent a year on the acquisition of IP
rights from programme contributors in BBC-produced programmes alone25 and IBM
generates between $1.5 billion and $2 billion in revenue per year by licensing its non-core IP.26
24
Intellectual Property – A Power Tool for Economic Growth, WIPO, 2003.
25
Call for Evidence submission, BBC.
26
Identifying and Managing Intellectual Property Risk and the Use of Insurance as a Risk Management Tool, Cauthorn K.,
Fordham Annual Conference, 2006.

Business– 2.27 Collaboration between universities and businesses has increased markedly over the
university last twenty years. Chart 2.7 shows that many UK universities created technology transfer
collaboration offices only in the late 1990s;27 by 2003, 80 per cent had at least one dedicated person; and staff
numbers continue to rise by almost 25 per cent each year. IP licensing rates and income have
increased: UK universities earned licensing income worth £22.4 million in 2002, an increase
of 21 per cent on the previous year, as the levels of technology transfer activity, funding and
staffing grew.28
Chart 2.7: Number of UK universities creating technology

transfer offices, 1971–2003
14
12
Number of universities
10
0
1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003
Year
Source: Lambert Review of Business–University Collaboration.
Consumers are 2.28 Digital technology has changed not only the types of products consumers can buy,
engaged in but also their role in the value chain. The traditional assumptions of the role of consumers in
innovation innovation is that they can choose between products but have little say over design or
creation of those products other than through market demand.
2.29 As the costs and barriers to sharing and changing content have fallen, users have
grouped together into networks. These networks enable previously passive consumers to
become adaptors and innovators themselves.29 The broad spectrum of consumers in society
means that this type of consumer-led innovation can be extremely creative. A balanced IP
framework must encourage user innovation while protecting the investment of firms.30
27
Lambert Review of Business–University Collaboration, HM Treasury, 2003.
28
Licensing Survey, Association of University Technology Managers (AUTM), 2003.
29
Creating Selves: Intellectual Property and the Narration of Culture, Gibson J., 2006.
30
The User Innovation Revolution, Leadbeater C., 2006.

Box 2.2: Case Study – The Sims collaboration

The Sims game from Electronic Arts was launched in 2000 and quickly developed into an
online community, with players swapping tools, software and artefacts to put into their
online houses. Hundreds of websites now display hundreds of thousands of collectible items
that are available to the millions of players. Electronic Arts estimates that 90 per cent of
the content of the game is not created by the game’s original authors but by a large
innovative sector of the playing community.
A game’s official release is the moment when the innovation initiative passes from the in-
house development team to the community of player-developers. Ideas flow back and
forth, among the players and between the players and the company.
New technologies
2.30 The IP system, with four core rights, covers an enormous variety of innovation and
creative expression. Nevertheless, new technologies do not always fit comfortably within the
existing classes of IP protection. For example, computer programs are written as an original
expression but they are also intended to be industrial applications, so they do not fit squarely
within either the boundaries of copyright or patent law. Databases are collections of facts,
which have traditionally not been covered by copyright law. Nevertheless the construction of
databases often requires substantial resources and so there would be no incentive to invest
without legal or technical ways to prevent others from copying the information. Finally, with
regard to the legitimacy of patents on genes, the line between what is created and what is
discovered has been hotly contested. Almost 20 per cent of human gene DNA sequences are
patented; 4,382 out of the 23,688 known human genes.31
IP policy responses to technological change

2.31 In response to the changes in recent years, a number of actions have been taken at UK
and international levels.
2.32 In 2003, as part of the implementation of the Information Society Directive,32 certain
types of on-line copyright infringement were criminalised.33 The maximum sentence for
committing the offence is two years imprisonment, which contrasts with infringements in the
‘physical world’ where the maximum penalty is ten years imprisonment.
2.33 The Lambert Review of Business–University Collaboration led to five model Research
Agreements being developed. These agreements were launched in February 2005 and have
already been used successfully by a number of organisations, saving time and money and
adding to certainty. For example, GlaxoSmithKline and the University of Hertfordshire
concluded a successful negotiation in just two days and GlaxoSmithKline has already put in
place 27 agreements. The agreements have also proved useful for SMEs.34
31
Intellectual Property Landscape of the Human Genome, Jensen K. and Murray F., Science, 14 October 2005.
32
Directive 2001/29/EC on copyright in the information society.
33
See sections 107(2A) and 198(1A) of the Copyright, Designs and Patents Act 1988 (CDPA).
34
Innovating for Success: The Intellectual Property Review and Economic Competitiveness, Lord Sainsbury, 2006.

2.34 Regarding reverse engineering for software development, there are specific
exemptions covering such activity in UK law.35 In the main, the Information Society Directive 36
prohibits any circumvention of technical protections such as encryption, even in some
instances, where they prevent uses permitted by fair dealing exceptions.
2.35 Currently, only if computer programs have a ‘technical effect’ can they be patented in
Europe. However, there is little authoritative definition of this phrase, and its scope is widely
contested. This has led to some computer programs being patentable in one country, such as
the USA, but not patentable in the Member States of the EU. Recent attempts to agree a
Directive to harmonise the law relating to software patents was rejected by the European
Parliament in response to fears about the negative implications that a US-style system for
software patents would have on innovation.
2.36 To protect the investment in databases, the EU established a new type of right specific
to databases,37 but the value of providing the right is still widely disputed by users of the
system.
2.37 In the EU, a protracted debate provoking strong and divergent views led to a directive
on the protection of biotechnological inventions.38 Controversy still surrounds the granting of
patents on biotechnological inventions. In part this is because of confusion about the effect
of patent protection on future innovation and concern about the patentability of technology
involved. While some Member States have severely restricted the grant of protection for
biotechnological inventions on moral grounds, the UK has established a clear policy and
practice which has fostered a strong domestic biotechnology industry, particularly around
stem-cell research.
Box 2.3: Case Study – Biotechnology patent disputes – Harvard

Oncomouse
The Harvard Oncomouse is an example of a disputed biotechnology patent. The mouse
had been genetically modified to contain a cancer-causing gene. The patent was filed and
granted by the United States Patent and Trademark Office (USPTO). It was filed in Europe
in 1985 and initially rejected in 1989 as, among other reasons, the European Patent
Convention (EPC) excludes patentability of animals.a The patent was then granted in 1992
on appeal as it was decided that only animal varieties were excluded, not animals
themselves. It was then opposed by several parties, the proceedings eventually concluding
in 2003 to allow the patent in an amended form.b In Canada, the Supreme Court rejected
the patent in 2002, ruling that higher life forms are not patentable.c
a
Harvard/Oncomouse (1990) EPOR 4.
b
Harvard/Oncomouse (2003) OJEPO 473.
c
See: Commissioner of Patents v. President and Fellows of Harvard College [2002] 4 S.C.R. 45.
35
Sections 50A to 50C of the CDPA.
36
See Article 7 of Directive 2001/29/EC.
37
Directive 96/9/EC on the legal protection of databases.
38
Directive 98/44/EC on the legal protection of biotechnological inventions.

I N C R E A S I N G I M P O R TA N C E O F I P
Use of IP has 2.38 In today’s knowledge economy, IP has never been more important for securing
increased Britain’s prosperity and has never been more challenged by the changing context of
innovation: it is estimated that 70 per cent of a typical company’s value lies in its intangible
assets, up from around 40 per cent in the early 1980s;39 and the number of patent applications
have more than doubled at the EPO in the last ten years.
IP valuation 2.39 While the number of registered IP rights has increased, the valuation of IP remains
remains difficult largely subjective and a specialist field. Traditional accounting methods only allow the
inclusion of IP on the balance sheet when it has been bought rather than developed in-house.
Proposals to update International Accounting Standards to reflect the value of intangible
assets are currently under discussion.
Consumer 2.40 Despite IP’s increasingly central importance to the UK economy, consumer
awareness is low knowledge of IP is low. A MORI poll on IP and UK public attitudes40 showed that awareness of
the phrase ‘Intellectual Property’ is generally low, with many respondents having to guess
what ‘Intellectual Property’ meant. Participants were more knowledgeable about IP that is
observable, such as trade marks, than more abstract forms of IP, such as patents.
2.41 When briefed as to what IP rights were, participants in the MORI survey felt that they
were often used exploitatively by companies and in an anticompetitive manner. IP crimes
such as piracy and buying counterfeit goods were seen as ‘victimless’ with no guilt associated
to buying fake goods at low prices. Fear of buying potentially harmful goods, such as fake
pharmaceuticals, was stronger: they saw the enforcement of standards and the protection of
consumer rights as the most important aspects of IP policy.
C O N C LU S I O N
2.42 Globalisation and technological change are profoundly changing the world economy.
Knowledge capital is more important than ever, and so too is IP. While the changing context
has provided new business opportunities, it has also created new challenges, both for
businesses that rely on IP and the IP system itself. The following chapter will examine in
greater detail how well the system has performed amid the challenges of the modern
economy.
39
Identifying and Managing Intellectual Property Risk and the Use of Insurance as a Risk Management Tool, Cauthorn K.,
Fordham Annual Conference, 2006.
40
Intellectual Property: Public Attitudes, MORI, 2000.

3 PERFORMANCE
3.1 The first chapter laid out the shape of the Intellectual Property (IP) system. The
previous chapter showed how global and technological changes have created significant new
challenges for the IP system. This chapter will assess the aggregate effectiveness of the system
that we have, and will identify areas where problems exist.
Satisfied users 3.2 The goal of this Review is to ensure that the UK has a productive and equitable IP
are a good system that serves the needs of its users and makes the rewards of innovation accessible to
indication of all. This chapter will consider how well the system operates in practice.
success
3.3 There are few standard measures that can be used to quantify the performance of the
IP system, but a number of qualitative indicators have informed the Review’s conceptual
framework for judging performance. These indicators have been constructed from the large
number of responses to the Review’s Call for Evidence, as well as interviews, case studies and
international comparisons.
THE PERFORMANCE FRAMEWORK

3.4 There are three components that together fashion an IP system that fosters
productivity and ensures equitable outcomes for industry and consumers:
(1) the instruments of IP, namely patents, copyright, designs, trade marks and sui
generis rights, ought to be balanced, coherent and flexible;
(2) the operations, i.e. the award, use and enforcement of those IP rights, must be
efficiently administered; and
(3) the national and international organisations responsible for the governance
of policy and operations must be clear and well run.
3.5 The performance of the first two components is discussed in more detail below. The
governance of policy and operations is discussed in Chapter 6.
Instruments
Balance 3.6 On the one hand, IP rights provide economic incentives to innovate, but on the other
hand, the exclusive rights they confer to achieve this allow monopoly prices and associated
welfare losses. So there is a trade-off between incentives on one side and costs to consumers
and limited access for follow-on innovators on the other. It is therefore crucial to strike the
right balance in the system.
Coherence 3.7 IP rights available within the UK must be both internally and externally coherent.
They must cover the myriad ways in which knowledge is applied and ideas protected. They
must also be integrated with other national and international systems of rights, particularly
in light of globalisation. Moreover, there should be certainty and consistency in rights.
Investment in knowledge-based industries should be grounded in a predictable legal
framework for the protection of that knowledge. Finally, rights should be intelligible to the
general public not just to IP specialists.

3 PERFORMANCE
Flexibility 3.8 The previous chapter examined the impact that globalisation and technological
change have had on the IP system. It is vital that in both the rights and the exceptions to those
rights, which limit the control of the rights owner, the IP system is robust and flexible enough
to cope with technological and environmental changes and so to continue to facilitate
innovation and continue to retain public support.
Operations
Award 3.9 The way in which IP rights are awarded must be affordable, transparent, swift,
consistent and accessible to all users. Awarded rights must not be so broad as to stymie
innovation by preventing others from engaging in similar areas of research, nor so narrow as
to provide no practical protection from competitors.
Use 3.10 It should be as easy as possible to buy, sell, license, securitise (grouping rights
together into a tradable asset) and observe IP rights, both within the UK and for UK firms
abroad. Moreover, competition authorities must have the ability to curb any abuse of
monopoly power stemming from IP rights.
Enforcement 3.11 IP rights are only useful if rights owners are able to enforce their rights, whether on
their own, through the civil courts or through law enforcement agencies such as trading
standards or the police. IP crime must carry penalties proportionate to the harm caused and
the risk of being caught. The costs of dispute resolution should be reduced by greater
availability and use of alternative dispute resolution.
Governance
3.12 It is vital that the organisations responsible for administering, enforcing and setting
policy for IP are well run and effectively integrated. Without adequately functioning bodies,
the IP system will not function in the way users expect.
PAT E N T S
Balance 3.13 Patents granted in the UK provide the proprietor with an exclusive right for twenty
years. There are a number of features of patent laws to allow wider access to the information
protected by the patent. Applications are normally published eighteen months after being
filed,1 theoretically enabling others to have access to all the technical information about the
invention. Applicants have an incentive to make the disclosure of technical information as
limited as possible, but in the UK the process of dialogue between applicants and examiners
to achieve clarity about the invention appears to work well. Similarly academic researchers
are protected by an exception covering experimental use that enables researchers to examine,
test and build upon inventions. However, many respondents to the Call for Evidence noted
that the scope of the exception is unclear in light of the increasingly commercial nature of
transactions between universities and businesses. Overall, the balance of patents appears to
be broadly satisfactory.
1
Applications claiming priority will be published earlier. Furthermore, patents which include information that might affect
national security are not published.

PERFORMANCE 3
Coherence 3.14 Responses to the Call for Evidence confirm that, in general, the UK patent system is
clearly defined, applied consistently and aligned with other IP rights. The patentability of
software remains contested, with applications required to prove a ‘technical effect’, but this
does not appear to have had a significant negative effect on industry innovation. The
harmonisation of international patent systems lags behind other forms of IP, not least in
Europe, as discussed in the previous chapter. This continues to impede the operational
integration of the award and enforcement of patents and to increase business costs.
Flexibility 3.15 In the face of enormous technological and economic changes, the rights granted by a
patent have changed remarkably little over the past twenty years. Users of the system confirm
that patents have nevertheless been a flexible tool able to absorb new technologies and
provide protection for new and emerging industries. For some technologies, such as
pharmaceuticals, additional specific rights (such as supplementary protection certificates)
have been developed to address particular regulatory issues. However, the absence of a new
right for every new technology has been a strength of the system and has prevented a
spiralling complexity of rights and boundary conditions of those rights.
How efficiently do patents operate?

Award 3.16 Many submissions to the Call for Evidence highlighted the expense of gaining patent
protection, and, in particular, high translation costs and professional fees for patent agents in
Europe and internationally. The official fees charged by the UK Patent Office for processing
an application are lower than those of many other national patent offices, but costs are driven
up by the expense of legal fees and advisory services. There are a number of routes to
obtaining patent protection in the UK and internationally, which has created a complex
system and significant confusion outside specialist practitioners. Approximately 70 per cent
of businesses surveyed by the Confederation of British Industry (CBI) were unaware that
patent protection in the UK did not secure their invention in other countries.2
3.17 The speed of the patent award process is hampered at both the US Patent and
Trademark Office (USPTO) and the European Patent Office by large backlogs that impose
delays of up to three years on applications. The UK Patent Office is unusual in having almost
no waiting list for patents, but nevertheless due to the nature of the granting process, few
patents are awarded in less than eighteen months. This is not a problem for many industries,
but in the high-tech and internet, sectors where business cycles are comparatively short, a
long grant time can impose the cost of uncertainty on competitors as to whether a particular
invention is proprietary or not.
3.18 Finally, regarding the quality of patents awarded, respondents were generally
satisfied with the rigour of both the UK Patent Office and the European Patent Office in their
examination procedure. One study estimated that between 83 per cent and 98 per cent of
patent applications were granted in the USA.3 In contrast, only about two-thirds of
applications are granted at the UK and European Patent Offices. Several users noted that the
quality of examination, particularly for new technologies such as biotechnology where prior
art may not be well documented, could be improved by introducing mechanisms for experts
in industry and academia to observe and oppose patents at the pre-grant stage to ensure that
granted patents are not overly broad in their application.
2
CBI China Survey.
3
Continuing Patent Applications and Performance at the US Patent and Trademark Office, Quillen C., Webster O. and
Eichman R., Federal Circuit Bar Journal, 12, 35, 2002.

3 PERFORMANCE
Box 3.1: Broad patents can stunt competition

Blackboard, a US maker of online learning management systems, recently took the
academic community by surprise when it announced it had been granted a broad patent
in the USA. The patent covers 44 claims related to learning management systems and
implicated infringement by many other products on the market. On the same day that it
publicly disclosed its patent, Blackboard started a patent infringement suit in a Texas court
against Desire2Learn.a Many companies that have been working on educational software
are now concerned that Blackboard will either sue for infringement or enforce complex
and expensive licensing agreements.
a
Patent battle over teaching tools, BBC website http://news.bbc.co.uk/1/hi/technology/4790485.stm, 2006
Use 3.19 Patents prevent rivals copying proprietary technology. However, research suggests
that this only tends to be the case for firms where there are a very small number of patents per
product, for example in pharmaceuticals. Cohen et al. show that 65 per cent of firms in
complex technologies use patents as a trading strategy to licence a technology (while only 12
per cent use patents as a fence). In simple technologies, 28 per cent of firms use patents as a
trading strategy to licence a technology, while 46 per cent use patents to fence off an area to
competitors and provide more intellectual ‘space’ to innovate.4 This strategy can be
problematic in areas where thousands of patents are used in the design of new products,
especially in the electronics and software industries. The US litigation between RIM and NTP
over technology used in BlackBerry devices illustrated that where the process involves the
automatic use of ‘injunctive relief’ (a court order to shut down production and use of the
application containing the contested patent) individual patents held by small firms become
very powerful even if they only play a small part in the whole application. UK courts have
appeared pragmatic in this area, judging cases on their individual merits. While injunctive
relief is available, judges are also willing to award specified damages rather than stop
production as the means of recompense.
3.20 For many years, patent legislation has provided for the renewal of a patent for a
reduced fee in exchange for the condition that the patentee must licence the technology for
a reasonable fee on request from a third party. This is not well advertised or widely used at
present, and firms appear largely unaware of its existence. Another mechanism for fostering
the use of patented technology has been the Lambert Model Agreements, which were
designed to facilitate university–business technology transfer. These have worked well and
are shortly to be extended to Europe.
Enforcement 3.21 A key aspect of enforcing rights is the existence of credible legal sanctions. However,
costs can be prohibitive, particularly for small firms. A firm challenging a patent can expect
to pay £750,000 for a simple case, largely due to the costs of the adversarial system. Liability
for the other side’s costs could double this to £1.5 million. Defending a European patent can
mean multiple actions in several jurisdictions, as each European patent is a series of separate
national patents subject to national jurisdictions. As well as increasing legal costs, it increases
uncertainty, with different jurisdictions on occasion coming to different decisions on the
same case.
4
Protecting Their Intellectual Assets: Appropriability Conditions and Why US Manufacturing Firms Patent (or Not), Cohen
W., Nelson R. and Walsh J., Management Science, 2002.

PERFORMANCE 3
3.22 The high cost of litigation means that most cases settle out of court. In the USA, which
has even higher costs, only 1.5 per cent of all patents are ever litigated, and 0.1 per cent of all
patents are litigated to trial.5 A series of interviews with small European firms found that
many small firms could not afford the high litigation costs necessary to defend their patents.6
Moreover, the lack of cases going to trial means there is a paucity of patent case law,
increasing the general uncertainty around the application of statute.
COPYRIGHT
Balance 3.23 There has been much academic and popular debate around the optimal length of
copyright. A balanced copyright system would be one in which the length of protection
equals the necessary incentive to produce a creative work. Given the variety of incentives that
stimulate artistic endeavour, and the number of different classes of work that copyright
protects, everything from paintings to musical scores, it is not possible to arrive at any
definitive optimal length. Nevertheless, future increases, or decreases, to the length of
copyright should certainly be dependent on economic evidence that such a change would be
positive. In any case, as a result of the international treaties to which the UK is a signatory and
the responsibility of the European Commission for this area of policy, the UK can make no
unilateral change to the length of copyright and is bound by strong minimum standards.
Coherence 3.24 The UK copyright system is heavily connected with international treaties that have
achieved a high level of harmonisation across the world. This has some positive aspects. For
example, there is a requirement in the Berne Convention that there should be no mandatory
registration of work for copyright to come into force. This greatly reduces administrative
costs. Conversely, as a result of the centralised nature of policy control, small adjustments to
the system can take many years.
3.25 Copyright protects many different types of subject matter, from literary, dramatic,
musical, artistic and cinematographic works to computer programmes, databases, sound
recordings and broadcasts. Copyright protecting different classes of work is subject to
different domestic and international treaties. Although this reduces the coherence in the
copyright system, coherence across all types of copyright may restrict the balance in the
system as not all copyright works are deemed eligible for the same style of protection. For
example, the term of protection for typographical arrangement, that is, the arrangement of
words on a page, is currently 25 years, compared with the life of creator plus 70 years for
literary works. The term of protection is intended to reflect the creative effort required, which
would not be reflected in a blanket harmonisation of term.
Flexibility 3.26 Copyright in the UK presently suffers from a marked lack of public legitimacy. It is
perceived to be overly restrictive, with little guilt or sanction associated with infringement.
While the law is complex, this is not principally a problem of coherence, but of a lack of
flexibility to accommodate certain uses of protected material that a large proportion of the
population regards as legitimate and which do not damage the interests of rights holders.
5
Probabilistic Patents, Lemley M. and Shapiro C., Journal of Economic Perspectives, 2005.
6
Innovation Needs Patent Reform, Kingston W., Research Policy, 2001.

3 PERFORMANCE
3.27 UK copyright law provides a number of ‘exceptions’ to the broad rights granted to the
owner of a copyright work to enable ‘reasonable’ use to be made of the work freely and
without permission. While the public are generally unaware of these exceptions (some of
which fall under the rubric of ‘fair dealing’), perhaps the best-known example is the rule of
thumb that an individual may photocopy an excerpt from a book of not more than one
chapter, or 5 per cent (whichever is the least), without infringing copyright. While the
exceptions are restricted to particular acts, the USA has a similar doctrine of ‘fair use’ which
is more flexible in its application.
3.28 As discussed in the previous chapter, advances in digital copying technology and the
expectations of consumers have outstripped the liberties granted by copyright law. A good
example of this is consumers copying music from CDs onto their MP3 players. Many do this
unaware that they are infringing copyright. Music Ally, a research and analysis consultancy,
estimates that by the first quarter of 2006, 1 billion iTunes files and 50 million iPods had been
sold, equating to twenty iTunes per iPod. Given that iPods can store upward of 1,000 songs,
there is a question as to where most of the music on iPods is coming from.
3.29 The fact that the letter of the law is rarely enforced only adds to the public sense of
illegitimacy surrounding copyright law. Yet copyright is essential for protecting the
investment that UK creative industries make in artists, performers and designers. If uses such
as transferring music from CDs to an MP3 player for personal use are seen to be illegal, it
becomes more difficult to justify sanctions against copyright infringement that genuinely
cost industry sales, such as from freely downloading music and films using the Internet.
3.30 Another issue affecting the flexibility of copyright is the use of old material where the
copyright owner is not known and cannot be found. In the absence of permission, any use is
infringement, and therefore many potential users will not use material for fear of legal
recriminations. Many submissions to the Call for Evidence highlighted this as a large
problem, noting that a large amount of content protected by copyright is not commercially
available. The existence of such a large volume of old work protected but unavailable
(estimates of up to 98 per cent of published work under copyright) means that a great amount
of intellectual capital is wasted. Firms and individuals are unable to restore, rework or revive
these ‘orphan’ works to create new commercial and creative capital.
How efficiently does copyright operate?

Award 3.31 Copyright is not formally awarded, but automatically exists in a work once it is
created. As noted above, the absence of any registration makes the award of copyright very
efficient and accessible, but as there is no register of who owns the copyright, it can be
difficult for third parties to reuse old works.
Use 3.32 Copyright licences for commercial work are either managed under contract directly
between the user and the rights holder, or alternatively by ‘collecting societies’ which act as
intermediaries between copyright owners in particular industries and users. For example, the
Educational Recording Agency collects licence revenue from schools and distributes it as
royalty payments to publishers. Licences can be as specific as granting unlimited private use
of CD (with “unauthorised copying, lending, hiring, public performance and broadcast of the
recording” being prohibited 7), or as broad as the Phonographic Performance Limited (PPL)
broadcasting licence, which saves radio stations from having to negotiate individual licences.
The system of licensing effectively reduces the transaction costs of every copyright holder
separately arranging for their work to be used and paid for in each instance. But it is also
marked by a lack of competition, with, for example, one collecting society setting a royalty rate
for a blanket commercial radio licence for playing music.
7
Similar wording can be found printed around the edge of most commercially sold CDs.

PERFORMANCE 3
3.33 ‘Creative Commons’ licences provide an alternative operating model that has been
particularly popular for non-commercial online licensing of digital media. The date of
creation and the permissions that the copyright holder grants to others using the work are
contained within an easily comprehensible licence, which is available online and is machine-
readable so that it can be automatically processed.
Enforcement 3.34 While criminal and civil legal sanctions against copyright infringement are tough,
infringement is extremely common. Approximately 3.5 million adults in the UK bought a total
of 35–40 million counterfeit CDs in 2005.8 Copyright infringement has increased as the
capabilities of technology and digital networks have grown, and piracy is now a significant
drag on the performance of UK creative industries. Total losses to the film industry in 2005 are
estimated at £719 million on industry box office and video sales of £3.5 billion.9 Enforcement
through the civil courts is costly, and cases are difficult to prove. Trading Standards, the police
and the Serious Organised Crime Agency are all aware of the problem, but it remains one of
many competing priorities.
TRADE MARKS
Balance 3.35 Trade marks are badges of identity that may be used to brand a company, product or
process. The balance inherent within trade marks is that other parties cannot use the mark to
mislead consumers, but they can use the mark to point towards that particular brand. For
example, comparative advertising, where one firm uses the other’s mark to publicise the
superior features of its own product, is permitted, whereas claiming that one’s own products
are genuine trade mark protected goods (counterfeiting) is illegal. The current system
appears to be well balanced.
3.36 There is evidence that the value of firms is positively related to incidence and
intensity of trade mark activity.10 Greenhalgh and Rogers also argue that a firm’s productivity
is positively associated with its trade mark activity, and this is more pronounced in service
sector firms than for manufacturing.11 A study by Griffiths et al. indicates that a company’s
stock of trade marks is associated with greater firm profits, controlling for other types of IP
and tangible/intangible assets.12 This suggests that trade marks are creating value for firms,
and that the system is broadly working well for rights holders.
Coherence 3.37 There is high level of international similarity between trade mark systems, and a
harmonised unitary ‘Community Trade Mark’ which protects across the whole of the
European Community. Recent changes to both trade mark and design law13 have increased
the number of the areas in which there is overlap (for example both now protect distinctive
shapes and signs) but the acts of infringement and the duration of the rights remain distinct
and accordingly the overlap is not seen as a significant practical problem by businesses.
8
Music Piracy in Great Britain, IPSOS, 2006.
9
IPSOS, 2005, from BVA tracking study. This is calculated by assuming that some proportion of pirated content would
have been purchased from the content provider. The full value of content is therefore greater than £719 million.
10
Trade Marks and Productivity in UK Firms, Greenhalgh C. and Rogers M., Oxford Intellectual Property Research Centre
Working Paper Series No 12, December 2005 http://www.oiprc.ox.ac.uk/EJWP1205.html.
11
Ibid.
12
The Effects on Firm Profits of the Stock of Intellectual Property Rights, Griffiths W., Jensen P. and Webster E., Melbourne
Institute of Applied Economic and Social Research Working Paper No. 4/05, 2005.
13
Trade Marks Act 1994 and Council Regulation 6/2002 on the Community Design.

3 PERFORMANCE
Flexibility 3.38 The recent increase in the classes of mark eligible for protection is a positive
reflection of the responsiveness of policy to changing business marketing practices. The other
positive indication of the flexibility of the trade mark system is that the protection granted to
marks reflects popular usage. Trade marks are struck off the register and lose protection once
they become generic or if they are not actively used. As such, the system works well to ensure
that once a trade mark is no longer functioning as an identifier, it is no longer protected as
such.
How efficiently do trade marks operate?

Award 3.39 Trade marks are affordable. However, they can take between six and nine months to
be granted. There is currently no ‘fast-track’ route available for firms that require protection
more quickly in order to start building up their brand.
Use 3.40 Brand owners in their respones to the Call for Evidence raised concerns that copycat
packaging (especially from supermarkets) threatened their brands and was unfair
competition, and that the hurdle of ‘consumer confusion’ required to prove trade mark
infringement was too difficult to prove in court.
Enforcement 3.41 There are large problems with the counterfeiting of trade marks. Similar issues exist
in relation to trade mark enforcement as to copyright, namely the fact that the police have
many competing priorities and that litigation is costly.
REGISTERED AND UNREGISTERED DESIGN RIGHTS

Balance 3.42 There were no issues raised with the Review regarding the balance of designs.
Coherence 3.43 There are a number of different design systems that overlap; this overlapping can
cause significant confusion within industry. The same design may be protected by seven
distinct IP rights14 as well as the common law protection of ‘passing off’. It is particularly
confusing that the Unregistered Design in the UK is different both in scope and in length from
the Community Unregistered Design. For example, the Community Unregistered Design only
lasts three years. In addition, the threshold for infringement of the UK Unregistered Design is
far higher than for the Community Unregistered Design.
3.44 Despite the overlap between the different rights, the UK has a thriving design
industry. The UK has a reputation as a centre for excellence in design: it is the top exporter of
design worldwide and has the fourth largest designer fashion industry in the world.15 UK firms
are frequent users of the Community Registered Design system, with 10 per cent of all
applications from 2003 to 2005.16
Flexibility 3.45 As with trade marks, the recent increase in the classes of design eligible for protection
is a positive reflection of the responsiveness of policy to changing business marketing
practices.
14
UK Registered Design, UK Unregistered Design, Community Registered Design, Community Unregistered Design, plus
UK trade mark, Community Trade Mark and copyright.
15
Mapping Document, DCMS, 2001. Accessed at: http://www.culture.gov.uk/creative/pdf/part1.pdf.
16
Statistics of Community Designs, OHIM, 2006.

PERFORMANCE 3
How efficiently does the design system operate?
Award 3.46 UK registered designs are awarded quickly and cheaply and are a popular method of
protection, but as Chart 3.1 below indicates, following the 2003 launch of the Community
Registered Design, the total number of designs registered in the UK has fallen from 9,000 in
2002 to less than 4,000 in 2005. However, this is not a problem and reflects the greater
geographical coverage of the Community Registered Design. So far, there have been no calls
from industry to disband the UK Registered Design.
Chart 3.1: UK Registered Design applications, 1989–2005

12,000
10,000
Total designs registered
8,000
6,000
4,000
2,000
0
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Year
Source: UK Patent Office.
Use 3.47 There were no issues raised with the Review regarding the use of designs.
Enforcement 3.48 In spite of the multitude of rights protecting designs, several submissions noted that
in practice it is extremely difficult to stop designs being copied. The legal mechanisms to
enforce design rights are complex. The common law protection of passing off, which may
protect an established design to which goodwill has attached, cannot normally be used to
stop somebody copying a new design. The uncertainty of the law and the limitations of
passing off mean that small designers cannot afford to take the risks associated with legal
action and, accordingly, competitors have no economic incentive to seek permission before
using the design. Anti Copying in Design (ACID) estimate that many designers are forced out
of business every year by legal costs or lost sales due to infringement.
SUI GENERIS RIGHTS

3.49 Sui generis rights protect specific sorts of innovation where the broader rights
discussed above are inappropriate for some reason. For example, Supplementary Protection
Certificates were introduced by the European Community to compensate for the increasing
length of clinical trials that was reducing the amount of market time under patent protection
for drugs. There were no major problems raised in the responses to the Call for Evidence
regarding either the selection of instruments or the way in which those instruments operate.

3 PERFORMANCE
Conclusions
3.50 This chapter has outlined a framework for a successful IP system, and has identified
the key objectives of IP policy and operations to ensure that patents, copyright, trade marks
and designs foster productivity and equity. Table 3.1 below summarises the performance of
the aspects of the system that have been discussed. The chapter has outlined a number of
problems, and the following chapters will analyse issues in the policy, operations and
governance of IP in depth and make targeted, practical recommendations in response.
Table 3.1: IP performance scorecard

Instruments Operations
Balanced Coherent Flexible Award Use Enforcement
Patents ✓ ✓ ✓ ✗ ~ ✗
Copyright ~ ✓ ✗ ~ ✓ ✗
Trade marks ✓ ✓ ✓ ~ ✓ ✗
Designs ✓ ✓ ✓ ✓ ✓ ✗
✓ High performance ~ Medium performance ✗ Low performance

4 INSTRUMENTS
4.1 This chapter is concerned with the instruments of Intellectual Property (IP); patents,
copyright, trade marks and designs. It is split into three sections setting out the characteristics
that the instruments should exhibit:
• balance; the instruments should ensure that the incentive to innovate is

balanced against the ability of follow-on innovators to access knowledge;
• coherence; the instruments should be clear and consistent; the scope of rights
should not change retrospectively in order to ensure trust in the system; and
the international system should promote innovation in all countries; and
• flexibility; the instruments should be flexible in order to respond to the

changing economic environment and the needs of rights holders and users.
4.2 Chapter 3 highlighted the impact of global and technological changes on the
economy as whole, and in particular on businesses who use IP. This chapter makes
recommendations to ensure that the instruments of the IP system are able to respond to
these challenges. The instruments should embody the principles of balance, cohence and
flexibity.
BAL ANCE
4.3 IP rights are a trade-off between incentives and access. On the one hand, IP rights provide
economic incentives to innovate, but on the other hand, the exclusive rights they confer to achieve
this allow monopoly prices and associated welfare losses. So there is a trade-off between incentives
on one side and costs to consumers and limited access for follow-on innovators on the other. It is
therefore crucial to strike the right balance in the system. This section focuses on the exceptions to
rights, which enable follow-on innovators to build on protected ideas to develop new innovations.
Clarifying the patent research exception

4.4 Research exceptions grant researchers the freedom to conduct research on patented
inventions for the purposes of understanding and improving existing products and processes
without the need to get permission. This exception reduces the transaction costs involved in
clearing rights for use of patents in experimentation and research. The number of patented
materials required to conduct experiments is often so great that the transaction costs of
obtaining licenses for all of them are prohibitive. In addition to the experimental use
exception, there are exceptions for private use and non-commercial use.1
Exceptions are 4.5 It is not entirely clear what uses fall within the scope of the experimental use
unclear exception. Uses in relation to the subject matter of a patent are generally covered by the
exception, while uses relating to different subject matter are not covered by the exception.
Confusion arises because there is no definition of what is in relation to, and what is different
from the subject matter. Some technologies, such as genes, may fall into both categories.
4.6 There is very little case law on what amounts to experimental use. This leads to
uncertainty as to its scope. A paper by the Department of Trade and Industry (DTI) and the
Intellectual Property Institute (IPI) found that the law on research exemption was widely
seen as unclear and in need of clarification.2 The paper also found that small research groups
in particular lose out under the existing law, for fear of facing a costly lawsuit. The lack of
clarity may dissuade researchers, who are fearful of infringing a patent and being sued as a
1
Section 60(5)(a) of the Patents Act 1977.
2
Patents for Genetic Sequences: the Competitiveness of Current UK Law and Practices, IPI on behalf of the DTI, 2004.

4 INSTRUMENTS
result. Evidence from the USA indicates that, under its research exception, on average one in
six scientific research projects is stopped or never started as a result of the grant of IP rights.3
It is imperative that research is not similarly impeded in the UK.
4.7 In addition to uncertainty over the scope of the exception, there are also instances
where licences have been sought and high fees have been demanded. In one study 19 per cent
of academics reported access to research materials was refused when sought.4 As stated in
Chapter 2, the number of patents granted has risen dramatically and in certain areas of
technology, ‘patent thickets’ have developed. There is concern that follow-on innovation will
be stifled by the cumulative royalty demands of patent holders or by fear of infringement.
Plant research 4.8 The experimental use exception is also relied upon in relation to plant patents. Many
plants are created from samples of other plants. For plant breeders, all experimentation with
a patented plant means reproducing it. This is an infringing act.5
4.9 Even if the second generation plant does not infringe the scope of the patent, the
research that created that plant might be found to have infringed the patent. This can act as
a powerful disincentive to experiment on patented plants. This was recognised in the
Biotechnology Directive, which provided that compulsory licences should be available for
those new plants that demonstrate a technical advance.6 However, the British Society of Plant
Breeders reports, that this provision is “ineffective in the UK at least”, because to prove
advance the product must actually be created, thereby infringing the patent. The IIP notes its
concern that “the UK law on research exemption does not clearly allow plant breeders to
make a cross with a variety with a patented gene sequence in it and to develop a new variety
without that gene in it”.7 Germany and France have introduced an exception as part of their
implementation of the Biotechnology Directive, which prevents breeders being sued for
development of new varieties.
4.10 The requirement that research is “private” is problematic; it is no longer sufficient for
universities because they are increasingly conducting research in collaboration with private
organisations. Furthermore, there is concern that if only research that is “non-public” is
exempt, then publicly funded research that is, as a condition of funding, disclosed may also
not qualify for the research exception.
Box 4.1: Swiss research exception

The effects of a patent do not extend:
(a) to acts undertaken in the private sphere for non-commercial purposes
(b) to acts undertaken for experimental and research purposes in order to obtain
knowledge about the object of the invention, including its possible utilities; in
particular all scientific research concerning the object of the invention is permitted
(c) to acts necessary to obtain a marketing authorisation for a medicament according
to the provisions of the law of 15 December 2000 on therapeutic products.
(d) to the use of the invention for the purpose of teaching in teaching establishments
(e) to the use of biological material for the purposes of selection or the discovery and
development of a plant variety
(f) to biological material obtained in the field of agriculture which was due to chance
or which was technically unavoidable
3
Do Formal Intellectual Property Rights Hinder the Free Flow of Scientific Knowledge? An Empirical Test of the Anti-Commons
Hypothesis, Murray F. and Stern S., 2004.
4
View from the Bench: Patents and Material Transfers, Walsh J., Cho C. and Cohen W., Science, vol 309, 2005.
5
According to the Biotechnology Directive 98/44EC.
6
Article 12 of Directive 98/44/EC on the legal protection of biotechnological inventions.
7
Patents for Genetic Sequences: the Competitiveness of Current UK Law and Practices, IIP on behalf of the DTI, 2004.

INSTRUMENTS 4
4.11 The experimental use exception should be clarified to enable researchers to examine,
learn from and improve upon inventions. The Swiss research exception, which was recently
changed, provides a good example of a clearer exception.
4.12 The Review believes that clarifying the research exception along Swiss lines will foster
research without damaging the interests of rights holders.
Recommendation 1: Amend section 60(5) of the Patents Act 1977 to clarify the research
exception to facilitate experimentation, innovation and education.
Copyright exceptions for education

Copyright 4.13 As discussed in Chapter 3, one of the purposes of exceptions to copyright is to reduce
exceptions exist burdensome transaction costs associated with having to negotiate licences. Thus, the
for educational exceptions enable educational establishments to provide high quality teaching without
purposes having to clear every individual use.
4.14 The existing exceptions to copyright8 enable teachers to copy printed material on an
ad hoc basis and to show off-air recordings where no licensing arrangement is in place.9 The
relevant licensing arrangements for off-air recordings are made by the Educational
Recording Agency (ERA). The licences are similar to those issued to commercial radio stations
by Phonographic Performance Limited (PPL) and Mechanical Copyright Protection
Society/Performing Rights Society (MCPS/PRS). An educational institution buys a licence
from the ERA and then does not need to clear the rights to copy a recording of a
particular broadcast or to show the programme in a particular case, as long as it is within the
terms of the licence. Similarly, for reprographic works, educational establishments have
licences with the Copyright Licensing Agency that enable teachers to photocopy material on
an ad hoc basis.
4.15 Currently, the education exceptions set out in the Copyright, Designs and Patents Act
1988 (CDPA) are too limited for the digital age, where information is no longer confined to
textbooks but can be shared over electronic whiteboards and computer networks. The
exceptions also do not apply to secure virtual learning environments (VLEs) or networked
computers or ‘intelligent whiteboards’ within educational establishments. The Review agrees
with the view presented by the Open University in its submission that educational exceptions
should be defined by intent, category of use and activity and not by media or location.10
4.16 In the absence of copyright exceptions, rights to copy, show or otherwise use the work
would have to be cleared with the right holder. However, even with the current exceptions,
clearance is time consuming and expensive. A survey of educational institutions found that:
• 90 per cent of respondents had to chase rights holders for permission, and the
average number of items chased per institution per annum was 97;
• 12.5 per cent of requests for permission to use material were never answered;
and
• fees of up to £7.55 per article were charged in the print environment. For 300
students this results in a cost of £2,265.11
8
Sections 32 to 36A of the Copyright, Designs and Patents Act 1988 (CDPA).
9
Section 35 of the CDPA.
10
Call for Evidence submission, Open University.
11
Clearing the Way: Copyright Clearance in UK Libraries, Gadd E, 2001.

4 INSTRUMENTS
Educational 4.17 In order therefore to ensure that educational establishments are able to take
exceptions advantage of new technology to educate pupils regardless of their location, it is necessary to
should be expand the existing copyright exceptions. At present an educational establishment can copy
clarified a broadcast work (e.g. a radio or television programme) and show it to its students without
infringing copyright provided the activity is for a non-commercial educational purpose.12 In
2003 the exception was modified so that educational establishments could allow students on
the premises to see the programme in their own time.13 However, the exception does not
extend to situations where students are not on the premises of the educational establishment.
This means that distance learners are at a disadvantage compared with those based on
campus and thus these constraints disproportionately impact on students with disabilities
who may work from remote locations.
4.18 The exception should therefore be expanded so that copyright is not infringed where
a copy of a broadcast (e.g. a television programme) is communicated to students who are not
located within the educational establishment.14 It is the Review’s view that such an exception
is permitted under the Information Society Directive, provided that the education provided is
not commercial and any source is indicated.15 It will also be necessary to ensure that access to
such material should not be generally available to the public: accordingly, distance learning
students will need to access the material securely via a VLE.
4.19 At present it is also not an infringement of copyright for a non-commercial

educational establishment to make reprographic copies of passages from books or similar
material, providing sufficient acknowledgements are made.16 However, the exception only
applies where no licensing scheme covering this sort of activity is in place. As mentioned
above, the Copyright Licensing Agency (CLA) presently provides such a licence and therefore
this exception has a limited impact. However, neither the exception nor the CLA currently
license short extracts being sent to distance learning students by email or in a VLE. This
disadvantages such students and makes it difficult for educational establishments to provide
students with short extracts of study material. Accordingly, the relevant copyright exception
should be extended to allow passages from works to be made available to students by email
or VLE without infringing copyright.17 However, right holders have a legitimate interest in this
field and so such an exception should not have effect where a licensing scheme is in place.18
Recommendation 2: Enable educational provisions to cover distance learning and

interactive whiteboards by 2008 by amending sections 35 and 36 of the CDPA.
Sound recording term

4.20 The European Commission is reviewing the length of copyright protection for sound
recordings in 2007 as part of the review of the body of Community copyright law. Some
members of the UK record industry have called for the Commission to increase retrospectively
the term of copyright from the current 50 years to 95 years. That is, that the term of protection
should be extended for existing works that are already in copyright as well as future works. This
12
13
Section 35(1A) of the CDPA.
14
This restriction is currently imposed by section 35(1A) of the CDPA.
15
Article 5(3)(a) of Directive 2001/29/EC. However, the Review is of the view the new extended exception should
continue not to apply where a licensing scheme is in place which covers such activities, in other words, section 35(2) of
the Act should apply to the extended exception as well.
16
17
Such use would also fall within Article 5(3)(a) of Directive 2001/29/EC.
18
In other words, section 36(3) of the CDPA should apply to the extended exception as well.

INSTRUMENTS 4
extension would also apply to works that have fallen out of copyright, but which would still be
in copyright if the longer term existed when they were created (the ‘retroactive’ revival of
copyright).19
4.21 Some companies and trade bodies in the UK record industry have called for the UK
Government to support their submission to the Commission that copyright term on sound
recordings should be extended. The Review consulted widely and has considered this proposal
in some detail, both for a retrospective change in copyright term and for a prospective change in
term that would only affect future recordings rather than those already in existence. As part of its
research into the question of term extension the Review commissioned an economic analysis
from the Centre for Intellectual Property and Information Law (CIPIL) at Cambridge University.
4.22 A number of reasons were advanced in the Call for Evidence from some groups in
favour of extending the term of protection:
(1) parity with other countries; in the USA, sound recordings are protected for 95
years. In Australia and Brazil the term of protection is 70 years;
(2) fairness; currently composers have copyright protection for life plus 70 years,20
whereas performers and producers only have rights for 50 years.21 Such a
disparity is unfair;
(3) extension of term would increase the incentives to invest in new music; the
‘incentives argument’ claims that increasing term would encourage more
investment, as there would be longer to recoup any initial outlay;
(4) extension of term would increase number of works available; copyright provides
incentives for rights holders to make works available to the public as it gives rights
holders a financial incentive to keep work commercially available; and
(5) maintain the positive trade balance; the UK has an extremely successful music
industry. The UK industry has between a 10 per cent and 15 per cent share of
the global market.22 In 2004, the UK sector showed a trade surplus of £83.4
million, earning £238.9 million in export incomes.23
The Review has carefully considered each of these arguments in turn.
1. Extension achieves parity with other countries

Extension is not 4.23 It is important to note that the term of protection is only one factor determining the
harmonisation royalties that artists and recording companies receive. The breadth of protection is also
important. In the EU, the term of protection for sound recordings and performers’ rights is
harmonised at 50 years.24 During this period, rights holders receive royalties for almost all
public performances of their work. In the USA, the term of protection is 95 years, but under
the Bars and Grills Exception25 around 70 per cent of eating and drinking establishments, and
45 per cent of shops, do not have to pay royalties to performers.26 In the USA, performers only
receive royalty payments when their music is played on digital radio,27 while in the UK all
19
From this point forward, ‘retrospective’ will refer to both forms of backward changes to copyright.
20
Section 12 of the CPDA.
21
Section 191 and section 13A of the CDPA.
22
Department for Culture, Media and Sport.
23
Call for Evidence submission, British Phonographic Industry.
24
Article 3 of Directive 93/98/EEC on harmonising the term of protection of copyright and certain related rights.
25
Section 110(5) of the USA Copyright Act. A complaint was made by the European Community against the USA that this
exception was contrary to Article 13 of TRIPS. A panel found in favour of the EC and the USA was ordered to pay annual
damages of US$1.2 million. This requirement has now lapsed.
26
See WTO Panel Report WT/DS160R, Section 110(5) of the USA Copyright Act, 5 June 2002.
27
Section 106(6) of the USA Copyright Act.
4 INSTRUMENTS
radio performances carry royalties.28 If the system in the USA was the same as that in the EU,
estimates suggest that European rights holders would receive royalties of $25.5 million per
annum for the broadcasting of their recordings in the USA.29 It is therefore possible that the
total royalties received in the EU is no less than, and may even be more than, those received
in the USA.
4.24 The argument has also been put forward that the longer length of term in the USA
encourages artists from the UK to sign to US recording companies, thereby remitting profits
to the USA. However, the Review has seen no evidence of UK bands choosing to sign to US
labels based on copyright term. If musicians are indeed signing to labels in the USA, there
may well be other reasons for doing so, such as the size of the market. In fact, there is
anecdotal evidence that bands from the USA are signing to UK labels to develop in a vibrant
music scene. For example, the Scissor Sisters are signed to Polydor UK, and their first album
sold 2.6 million copies in the UK, and only 130,000 in the USA. Orson, another American
band, achieved a number one single with “No Tomorrow” and is signed to Mercury Records
in the UK.
2 . Pe r f o r m e r s a n d c o m p o s e r s s h o u l d h a v e e q u a l
protection
Fairness applies 4.25 Performers argue that the incentives to perform are no less than those required to
to society as a write lyrics or compose a score, and that the performance itself is a work of art. The distinctive
whole voice and aesthetic of the performer adds value to the composition and is vital to making a
song a commercial success.
4.26 But the fairness argument applies to society as a whole. Copyright can be viewed as a
‘contract’ between rights owners and society for the purpose of incentivising creativity. As
MacCauley argued in 1841, “it is good that authors should be remunerated; and the least
exceptionable way of remunerating them is by a monopoly. Yet monopoly is an evil. For the
sake of the good we must submit to the evil; but the evil ought not to last a day longer than is
necessary for the purpose of securing the good”.30 If the exclusive right granted by copyright
(or indeed any other form of IP right) lasts longer than it needs to, unnecessary costs will be
imposed on consumers.
4.27 Economic evidence indicates that the length of protection for copyright works
already far exceeds the incentives required to invest in new works. Boldrin and Levine31
estimate that the optimal length of copyright is at most seven years. Posner and Landes,
eminent legal economists in the field, argue that the extra incentives to create as a result of
term extension are likely to be very small beyond a term of 25 years.32
4.28 Furthermore, it is not clear that extending term from 50 years to 70 or 95 years would
remedy the unequal treatment of performers and producers from composers, who benefit
from life plus 70 years protection.
4.29 This is because it is not clear that extension of term would benefit musicians and
performers very much in practice. The CIPIL report that the Review commissioned states
that: “most people seem to assume that any extended term would go to record companies
rather than performers: either because the record company already owns the copyright or
28
In relation to sound recordings this is a result of section 20 of the CDPA. In relation to performances, this is the
combined effect of sections 182CA and 182D of that Act.
29
TRIPS and the Fairness in Music Arbitration: The Repercussions, Owens R., European Intellectual Property Review, 2003.
30
MacCauley, Thomas Babington, Speech to House of Commons on 5 February 1841.
31
Growth and Intellectual Property, Boldrin M. and Levine D., 2005.
32
The Economic Structure of Intellectual Property Law, Landes W. and Posner R., 2003.

INSTRUMENTS 4
because the performer will, as a standard term of a recording agreement, have purported to
assign any extended term that might be created to the copyright holder”.33 The British
Phonographic Industry (BPI) submitted a report by PricewaterhouseCoopers (PWC) to the
Review.34 Using the maximum revenues predicted in the PWC report, CIPIL estimated that the
net present value (NPV) of a prospective change in term would be 1 per cent or lower for
performers. The report noted that distribution of income would be highly skewed, with most
income going to the relatively small number of highly successful artists whose work is still
comercially available after 50 years.
Box 4.2: Artists would not necessarily benefit from extension

In theory, artists would receive payment for an increased period of time. The PWC report
indicates that performers obtain 50 per cent of public performance income. However, the
amount that performers receive from CD sales is set by a “greater variety of contractual
arrangements between artists and record companies than ever before”.a But, the
‘advance’ that creators receive is determined by contract and bands have to pay back the
record company for initial investment. Eighty per cent of albums never recoup costs and
so no royalties are paid to the creator.b As shown in the charts below, on average creators
receive a very low percentage of royalties from recordings. If the purpose of extension is
to increase revenue to artists, given the low number of recordings still making money 50
years after release, it seems that a more sensible starting point would be to review the
contractual arrangements for the percentages artists receive.
Chart 4.1: Revenue Distribution

CD sale Download sale
revenue distribution revenue distribution
9%
15% 9% 8%
45%
46%
68%
Creators Creators
Record company Record company
Retailers Digital service provider (DSP)
Credit card charge
Source: MCPS/PRS Alliance.
It is worth noting that length of term of protection on sound recordings and performance
rights is not the only source of revenue. Performers receive pecuniary benefits beyond the
return on the sale of their creations, by using celebrity status to make money. For example,
performers may choose to appear in advertising campaigns or to sell branded
merchandise, and the value that they bring to the advertising campaign is derived from
their creative works.
a
Call for Evidence submission, British Phonographic Industry.
b
www.music-law.com/contractbasics.html.
33
Review of the Economic Evidence Relating to an Extension of Copyright in Sound Recordings, Centre for Intellectual Property
and Information Law, 2006.
34
The Impact of Copyright Extension for Sound Recordings in the UK, PricewaterhouseCoopers, 2006.

4 INSTRUMENTS
3. Extension will increase the supply of new music

Extension will 4.30 Investment decisions are typically based on the expectations of future returns.
not increase Therefore, in order for the incentive argument to hold, it must be shown that prospective
incentives extension of copyright term for sound recordings would increase the incentives for record
companies to invest in new acts.
4.31 In an amicus brief to the Supreme Court in the challenge to the Copyright Term
Extension Act,35 seventeen economists, including five Nobel Prize winners, estimate that
extension for new works creates at most 1 per cent value for a twenty year prospective
extension (using NPV calculation) and they conclude therefore that extension of term has
negligible effect on investment decisions.36 Furthermore, they noted that the then term of
protection in the USA had nearly the same present value as perpetual copyright term. As
such, many economists suggest that increasing copyright term beyond 50 years does not
provide additional incentives to invest, as monies earned so far in the future fail to impact on
current spending decisions.
4.32 The incentives argument is sometimes applied to artists as well as to record

companies. That is, if musicians were to receive royalties for an additional period of time, they
would have more incentives to make music. This seems highly unlikely given there are a large
number of bands already creating music without any hope of a financial return. Dave
Rowntree, drummer with Blur and The Ailerons, commented that: “I have never heard of a
single one [band] deciding not to record a song because it will fall out of copyright in ‘only’
fifty years. The idea is laughable.”37
Most recordings 4.33 Evidence suggests that most sound recordings sell in the ten years after release, and
do not sell for 50 only a very small percentage continue to generate income, both from sales and royalty
years payments, for the entire duration of copyright. Before becoming a signatory to the Berne
Convention the USA operated a system where copyright had to be applied for and renewed.
Between 1923 and 1942, there were approximately 3,350,000 copyright registrations.
Approximately 13 per cent of these were renewed. If current law had applied between 1923
and 1942, 3.35 million works would have been blocked to protect 77,000 commercially viable
works.38 In a system where all works receive protection for the maximum term, the vast
majority of works remain in copyright despite not being economically viable for the rights
holder. Without registration, it is difficult to get accurate estimates of the percentage of works
protected in the UK by copyright that are commercially available. Box 4.3 below shows that
the vast majority of income for sound recordings and books are generated within the first few
years of issue. Therefore, extension would only raise revenue for a small minority of sound
recordings, keeping the vast majority locked up.
35
Eldred v. Ashcroft (2003) 537 USA 186.
36
The Copyright Term Extension Act of 1998: An Economic Analysis, Akerlof, G. et al., 2002.
37
Call for Evidence submission, Dave Rowntree.
38
Brief for Petitioners at 7, Eldred v. Ashcroft, (2003) 537 USA 186.

INSTRUMENTS 4
Box 4.3: The commercial life of most creative works is very shorta
Chart 4.2: Income by release year as percentage of total

income, 2004
35
Percentage of total income 30
25
3% 30% 67%
20
15
10
1989
2003
1959
1955
1975
1965
1971
1979
2001
1993
1969
1991
1983
1995
1981
1957
1977
1967
1973
1985
1997
1987
1963
1961
1999
Source: Phonographic Performance Limited and PricewaterhouseCoopers.
Chart 4.2 indicates that the vast majority of income generated by sound recordings comes
from those released since 1999. Therefore, the increased revenue from extension would
be small, but would affect well-known artists.
A similar pattern appears for books as shown in Chart 4.3 below:
Chart 4.3: Sales of fiction in first year of publication

900
800
700
600
Books per week
500
400
300
200
100
0
0 4 8 12 16 20 24 28 32 36 40 44 48 52
Week post publication
Hardback fiction titles Paperback fiction titles
Source: Neilson Book Scan.
These sales shapes, and data from the USA Library of Congress, suggest that the majority
of sales are from new releases, and that the majority of works do not have enduring
commercial value. However, extension would impact all works – not just those that
continue to be commercially successful.
a
The Copyright Term Extension Act of 1998: An Economic Analysis, Akerlof, G. et al., 2002.

4 INSTRUMENTS
4. More music would be available to consumers

Works in 4.34 Extension would impact on all recordings. It would keep works in copyright even
copyright are when they are not generating any income for rights owners. One study found that parties
less available without legal rights have made more historic US recordings available than have rights
holders. Furthermore, rights holders reissue recent works while largely ignoring earlier
music.39 Of the sound recordings published between 1890 and 1964, an average of 14 per cent
had been reissued by the copyright owner, and 22 per cent by other parties.40 These statistics
suggest that the costs of renewing copyright41 or reissuing copyrighted material are greater
than the potential private return, but that these works may have enduring social and
cultural value.
4.35 The lack of commercial availability impacts upon consumers and users, but it is also
worth noting the impact this has for all creators and musicians. Chapter 2 noted the
increasing prevalance of licensing and the complexity of rights clearance. If works are
protected for a longer period of time, follow-on creators in the future would have to negotiate
licences to use the work during that extended period. This has two potential implications:
first, the estates and heirs of performers would potentially be able to block usage rights,
which may affect future creativity and innovation; and second, this would make tracing rights
holders more difficult. Thus extending term may have negative implications for all creators.
39
Survey of Reissues of U.S. Recordings, Brooks T., Aug 2005.
40
Ibid.
41
Which was a requirement of US law during the period that Brooks was studying.

INSTRUMENTS 4
Box 4.4: Comparison of price and availability of books in copyright and
in the public domain
Evidence suggests that works that are protected by copyright are less available and more
expensive than works in the public domain. A study by Paul Heald looked at the price and
availability of ‘durable books’ – titles which retain their cultural and economic value and
continue to sell many copies. Under copyright, these books are more expensive than those
durable books that have passed into the public domain. Further study shows that works
that are protected by copyright are less available than those works in the public domain.
This suggests that extension would keep durable books at higher costs for a longer period
of time, and would make all works, including the most popular works, less available for
longer.
Chart 4.4: Price comparison of durable public domain (PD) and Chart 4.5: Availability (in print) in 2006
100
copyrighted books in print (BIP)
12 90
80
10
70
Cost in dollars
8 60
Per cent
50
6
40
4
30
2 20
10
0
Ave. low Ave. low price Lowest price 0
price (BIP) (BIP) (Maj. Pub.) from Amazon PD (1913–22) Copyrighted (1923–32)
166 books 168 books
17 Durable PD books (1906–22) 19 Durable copyrighted books (1923–32)
Availability (in print) in 2006
Source: Heald, Paul (2006). Property Rights and the Efficient Exploitation of Copyrighted Works: An Empirical Analysis of
PublicDomain (1906-1922) and Proprietary (1923-1933) Fiction Best Sellers (working draft).
5 . T h e U K’ s t r a d e b a l a n c e w o u l d i m p r o v e
Increasing term 4.36 The argument that the balance of trade would improve makes two assumptions; first,
will damage the that increasing term is necessary to receive longer terms in other countries; and second, that
UK balance of because the UK is a net exporter of music, more money will flow in from foreign markets. The
trade CIPIL report argues that this is not the case.
4.37 Firstly, the term of protection depends on where a recording is played, not on where
it was produced; therefore term extension would only be beneficial to the balance of trade if
UK copyright owners were able to benefit from longer terms in other countries. However,
most countries outside Europe42, including the largest foreign markets for international
repertoire – the US and Australia – do not apply a ‘comparison of terms’ to the protection
granted to sound recordings. This means that the term of protection offered in a foreign
country is not dependent on the country of origin of the sound recording. UK copyright
owners already benefit from the longer term offered in the USA and Australia where royalties
are collected from those countries, and the CIPIL report notes that changes in British law
would not now affect the term granted to British phonograms.
4.38 Secondly, the CIPIL report show that the US market, which is worth $12,153 million43,
comprises only 5 per cent of international repertoire. In comparison, the UK market, worth
$3,508.7 million includes 43 per cent of international repertoire. Thus whilst the UK music
industry is extremely successful, the UK is a substantial importer of sound recordings, and
42
Comparison of terms is required under Article 7 of Directive 93/98/EEC.
43
The Record Industry in Numbers, IFPI, '2005.

4 INSTRUMENTS
therefore the extra revenue from 43 per cent of international sound recordings sold would be
remitted overseas. In combination, extension to UK sound term would cause little additional
in-flows, but would increase remittances abroad. Therefore, as the CIPIL report concludes,
“increasing copyright term at home from 50 to 70 or 95 years is likely to have a
disproportionate, negative effect on the balance of trade.”
Extension would 4.39 Increasing the length of sound term increases the length of time during which
cost industry royalties accrue. Once copyright in a sound recording ends, no royalties are due for that
recording, and fewer licences are required to play those songs (copyright in the composition
would continue, and therefore would continue to require a licence). PPL collects monies to
remunerate rights holders whenever their sound recordings are played (see Chart 5.4 for more
details). In 2005 PPL collected £86.5 million from venues, premises and broadcasters to
remunerate rights holders.44 The majority of this was collected from UK organisations and
broadcasters. Because the cost of the licences reflects the royalties payable on the copyrights,
as those copyrights expire, so the cost of the licences will fall. Term extension would keep the
cost of sound recording licences higher for longer. Extension would increase costs for all
businesses that play music, for example hairdressers, old people’s homes, local radio and
internet service providers (ISPs). The impact of extension would therefore be felt throughout
the economy.
4.40 In conclusion, the Review finds the arguments in favour of term extension
unconvincing. The evidence suggests that extending the term of protection for sound
recordings or performers’ rights prospectively would not increase the incentives to invest,
would not increase the number of works created or made available, and would negatively
impact upon consumers and industry. Furthermore, by increasing the period of protection,
future creators would have to wait an additional length of time to build upon past works to
create new products and those wishing to revive protected but forgotten material would be
unable to do so for a longer period of time. The CIPIL report indicates that the overall impact
of term extension on welfare would be a net loss in present value terms of 7.8 per cent of
current revenue, approximately £155 million.
Recommendation 3: The European Commission should retain the length of protection

on sound recordings and performers’ rights at 50 years.
Retrospective changes to sound recording term

4.41 As discussed above, changes to the length of IP protection can be made
retrospectively or prospectively, and the Review has considered the evidence for both forms
of extension. This section will consider retrospective changes to copyright.
4.42 Copyright is a contract between creators and society; once the work has been created,
altering the length of term of protection changes the terms of that contract. This is not fair for
consumers, as they would be forced to pay monopoly prices for longer than they had implicitly
accepted. The same logic applies to all forms of IP rights.
4.43 The principal argument that is put forward to increase sound term retrospectively is
that many recordings from the 1950s are beginning to fall out of copyright and that this will
lead to a loss of revenue, therefore impacting on the incentives to invest in newer artists. As
discussed earlier, investment decisions are made on the basis of expected future returns
rather than those already received. Furthermore, if music companies have access to capital
44
PPL Annual Report and Financial Statement, 2006.

INSTRUMENTS 4
markets future investment decisions will be entirely unaffected by the length of protection of
current works. Additional, anecdotal evidence suggests that some new successful bands are
signed to relatively new record labels. For example Franz Ferdinand are with Domino
Records, which was founded in 1993 and rarely re-releases records that predate itself, and the
Kaiser Chiefs are signed to B-Unique, founded in 2004.
4.44 The PWC report estimated that at most the NPV of a twenty-year retrospective
extension for revenue over the next 50 years would be around £156.1 million, and for a 45 year
retrospective extension, £163 million. Using PWC’s discount rate of 12 per cent, this equates
to approximately £20 million per year. These figures represent only a 1.8 per cent and 1.9 per
cent respectively increase in the present value of revenue from existing recordings; even at
the upper bound, the increase in revenues from existing recordings are very small in present
value terms. Correspondingly, PWC estimates that performers would also gain 1.9 per cent
revenue in present value terms, and “the distribution of this income will be highly skewed
with a relatively small number of performers of successful older works being the major
gainers”.
Costs to 4.45 If recording companies receive increased revenue from an extension of copyright
consumers term, that revenue must come from somewhere. The PWC report performs an analysis of the
price differential of sound recordings in and out of copyright. The report concludes that there
is no statistically significant different between the average prices of recordings that are
protected by copyright and in the public domain. PWC contend that if prices do not change
between works in and out copyright, then term extension will have no impact on consumers.
Instead they suggest that those who make public domain recordings will benefit at the
expense of the former rights holders.
4.46 However, PWC note that there are problems with the data, such as the small sample
size. Many public domain recordings may not be available in the large retailers where the data
was sourced. They also note that as there are not a large number of popular recordings currently
in the public domain, relative to the number of recordings that will enter the public domain in
the coming years, there is no certainty that this observed trend will continue. As sound
recordings of enduring popularity enter the public domain, economic theory suggests that
competition between many release companies will drive down the price, just as has occurred in
the public domain book market for classic literature. Therefore, the review believes that most of
the increased revenue from term extension would come directly from consumers who would
pay higher (i.e. monopoly) prices for longer. Working on the maximum producer gains from
sound term extension, the CIPIL report estimates that retrospective extension would cost
consumers between £240 million and £480 million in net present value terms.45
4.47 The additional revenue for producers is likely to come from the most popular
recordings, which will have a correspondingly high cultural value. Given that a low number of
sound recordings or performances retain any commercial value beyond 50 years, extending
term to all these would lock up the majority of recordings that are not generating income,
rendering them unavailable for consumers and future creators.
Recommendation 4: Policy makers should adopt the principle that the term and scope
of protection for IP rights should not be altered retrospectively.
Review of the Economic Evidence Relating to an Extension of Copyright in Sound Recordings, Centre for Intellectual Property
45
and Information Law, 2006.

4 INSTRUMENTS
COHERENCE
4.48 The IP rights available within the UK must be both internally and externally coherent. They
must cover myriad ways in which knowledge is applied and ideas protected, and must also be
integrated with other national and international systems of rights, particularly in light of
globalisation. Moreover, there should be certainty and consistency in rights. Investment in
knowledge-based industries should be grounded in a predictable legal framework for the
protection of that knowledge. Finally, rights can only be coherent if they are simple enough to be
understood by the general public as well as by IP specialists. As discussed in Chapter 3, the
performance of the UK IP system is regarded as generally good. This section therefore focuses on
the role of IP in promoting international development; an aspect of policy development that has
perhaps been rather neglected. This section makes recommendations to ensure that the
international IP system is clear and comprehensible.
R o l e o f I n t e l l e c t u a l Pr o p e r t y f o r d e v e l o p m e n t
4.49 Policy makers and development economists agree on the need to foster innovation
and technology transfer to the developing world. Differences exist over the best means of
achieving this goal. There is considerable disagreement over what sort of IP regime is in the
best interests of developing countries.
4.50 Some commentators, for example Romer,46 and Shapiro and Hassett47 argue that
‘strong’ IP rights are in the interests of developing countries. They contend that strong IP
protection creates the necessary incentives for firms, principally, if not exclusively, from the
developed world, to invest in poorer countries, by enabling them to capture the value in ideas.
This, they argue, is of benefit to poorer countries because indigenous firms will capture spill-
over benefits from foreign firms. For example, their employees will learn non-IP protected
skills, such as good management. This approach could be broadly characterised as
emphasising the importance of market mechanisms (in the form of IP rights) as a means of
stimulating developing countries to innovate.
4.51 However, other commentators, most notably the Commission on Intellectual

Property Rights, commissioned by the Department for International Development, contend
that ‘weak’ IP is in the best interests of developing countries. Countries with weak IP regimes
are able to use technologies refined in developed countries in order to develop their own
innovative capacity. This approach could be said to emphasise ‘extra-market’ mechanisms
and place a strong emphasis on the need for developing countries to imitate. The economist
Keith Maksus explains: “enforceable IP rights are neither necessary nor sufficient to establish
robust inflows of technology”.48
The case for 4.52 There is a wealth of evidence showing a correlation between strong IP and high
‘strong’ IP growth rates. One study of 80 countries between 1975 and 1994 showed that strong IP was
correlated with high growth in rich and poor countries. Another study examining 95 countries
from 1960 to 1988 found strong correlations, and that foreign direct investment (FDI) was
encouraged in developing countries with strong IP protection.49
4.53 However, the evidence from that study was not conclusive. It showed correlation
between strong IP and high growth, not causation. The rapid growth rates experienced in
South East Asia in the 1960s and 1970s were stimulated by very high levels of saving and
46
Economic Growth, Romer P., in Fortune Encyclopedia of Economics, Henderson D., ed, 1993.
47
The Economic Value of IP, Shapiro R. and Hassett K., 2005.
48
Encouraging International Technology Transfer, Maksus, K., International Centre for Trade and Sustainable Development
and United Nations Conference on Trade and Development, 2004.
49
The Economic Value of IP, Shapiro R. and Hassett K., 2005.

INSTRUMENTS 4
investment. It might be the case that local investment and the desire to protect indigenous
innovations prompted stronger IP protection.
4.54 Also, the studies cited measure Gross Domestic Product, not Gross National Product,
in the developing countries they investigate.50 This means that the studies include benefits
that accrue to the shareholders of the foreign firms in addition to the benefits to nationals in
developing countries. Although there are likely to be some multiplier effects, these results
probably overstate the benefits to developing countries significantly.
The case for 4.55 The development of today’s richer countries suggests that ‘weaker’ IP may be more
‘weak’ IP suited to countries in development. In its formative stages of development the USA sought to
develop by appropriating technology from Europe. George Washington suggested legislation
to encourage “the introduction of new and useful inventions from abroad”. Between 1790 and
1836 the USA restricted patents to residents, hardly an approach to incentivise foreign capital
inflows and ensure free markets. When Switzerland industrialised in the 1880s it did so
without a patent system, allowing it to benefit from innovations developed elsewhere.
Ultimately patents were only introduced under pressure from trading partners. Similarly,
between 1960 and 1980 Asian economies emphasised the importance of reverse engineering
and imitation. When South Korea adopted patents in 1961 their term was limited to only 12
years and they were not available for foodstuffs, pharmaceuticals or chemicals. Perhaps most
strikingly, Italy only introduced a patent system in 1978.51
4.56 Patent rights are territorial. To gain protection, firms must register their rights in each
country in which they seek protection. Therefore, it is not obvious that there is a link between
the location of R&D and the patent regime in that country. For example, a company could
undertake R&D in a country with no IP protection and quite easily register the invention
somewhere else. Factors including the presence of skilled workers and low costs are more
likely to impact on R&D location decisions than the strength of the IP system. Simply
strengthening the IP system in developing countries would not necessarily facilitate foreign
investment. Furthermore, there are costs associated with issuing and enforcing IP rights, both
for consumers who face higher prices for goods and for stretched government finances in
staffing IP offices with trained experts.
‘One size fits all’ 4.57 The economic evidence and, in particular, the history of currently developed
is inappropriate countries suggest that a single one-size-fits-all approach is inappropriate. Stronger IP
protection can ultimately reap rewards in terms of greater domestic innovation in developing
countries and in developing countries with sufficient capacity to innovate. However, it has
little impact on innovation in developing countries without the capacity to innovate, and it
may impose additional costs.52 Given that different IP regimes are more appropriate at
different stages of development, it would make sense to allow individual nations to choose
when to strengthen their IP regimes, rather than to seek to enforce a certain perspective.
The international 4.58 Chapter 3 outlined the international architecture for IP. The Trade-Related Aspects of
architecture Intellectual Property Rights Agreement (TRIPS) sets out minimum standards for IP which all
World Trade Organisation (WTO) Member States must meet. These stipulations have proven
very burdensome for some developing countries. For least developed countries (LDCs),
which have not yet developed their own technology base, the best means of encouraging
technology transfer is to utilise the freedoms and flexibilities that exist in TRIPS.
50
The Role of Intellectual Property Rights in Economic Growth, Gould D.M. and Gruben W.C., Journal of Development
Economics, March 1996.
51
Integrating Intellectual Property Rights and Development Policy, Commission on Intellectual Property Rights, 2002.
52
The Role of Intellectual Property Rights in Technology Transfer and Economic Growth: Theory and Evidence, Falvey R. and
Foster N., United Nations Industrial Development Organization, 2006.

4 INSTRUMENTS
4.59 In addition to exploiting the potential for weaker IP regimes, where appropriate it is
important that developing countries can see, and are able to use, the benefits that IP
undoubtedly brings. For example, patent offices in developing countries could encourage
rapid publication of patents and actively assist local firms and individuals to access patents
and use them to assist local innovation. In a similar vein, there are opportunities to use IP
rights to create value using the resources of developing countries, for example establishing
protection for geographic identifications for coffee-growing areas.
4.60 There are ways in which developing countries could seek to increase the stock of
public knowledge that an IP system facilitates. One way of achieving this would be to have
rising patent renewal fees. This would encourage international firms who hold patents to
allow them to lapse and fall into the public domain earlier, thus enabling other firms to use
and adapt them. It is true that this would reduce the value of exclusive rights for patent
holders, but for technology that has been patented in the developing world firms are likely to
have already recouped most of the R&D costs from markets in developed countries in any
case. This was the approach taken by South Korea and Taiwan to enable local businesses to
move gradually up the technological curve, first by imitating developed technologies and
later developing their own.
4.61 It is important that Governments and patent offices in developing countries are aware
of the potential benefits available to them within the current international IP framework.
Crucially, they should adapt their IP regimes in the manner most applicable to their
circumstances. They should also take advantage of helpful aspects of the IP system, such as the
requirement to provide public information about innovations, to foster technology transfer.
4.62 But patent offices in developing countries often lack resources and face large
workloads. This can hinder the development of a strategic, coordinated approach to IP
matters. The UK has forged strong relationships with foreign patent offices, for example in
China, to assist them with application procedures and enforcement policies. The UK Patent
Office (UKPO) also has good contacts with offices in developing countries. However, there is
potential for further joint working.
Recommendation 5: UKPO should undertake joint working with African patent offices
from mid-2007, with the aim of:
• helping them to take advantage of the flexibilities currently existing in the
WTO/TRIPS architecture where appropriate; and
• encouraging them to make positive use of IP rights through dissemination of
information in patents.
4.63 In the short term the provision of technical assistance to aid developing countries to
take a more strategic approach to IP should help to facilitate the transfer of technologies. In
the longer term it would be helpful for the international community to enable the least
developed countries to ‘strengthen’ IP regimes as and when it suited them. Indeed, it has
already been recognised that the least developed countries (in the WTO) may need longer to
implement some of requirements of TRIPS than the present deadline of 2016.
Recommendation 6: Encourage the international community under the auspices of the

WTO to review the TRIPS status of the least developed countries prior to 2016 and
consider whether further extension for reaching TRIPS compliance would be appropriate.

INSTRUMENTS 4
4.64 There are also concerns that TRIPS may be too restrictive to meet the needs of
developing countries in relation to access to pharmaceutical products. There have been
particular problems with its provisions on compulsory licensing. A compulsory licence is an
involuntary contract between a patent holder and a third party authorised by the
Government. It entitles the licensee to make use of the patented material (in this case a drug)
for a period during the lifetime of the patent. Compulsory licensing thereby enables
Governments in the developing world to reduce the costs of providing medicines by
introducing another provider into the market.
4.65 Conditions in TRIPS can hinder the effectiveness of compulsory licensing. TRIPS only
allows licensees to provide drugs to their domestic market.53 So, only a firm in a developing
country could produce the drugs for sale in that country. But developing countries often lack
sufficient manufacturing capacity to produce drugs. This renders compulsory licensing
provisions of limited use.
4.66 In 2001 it was acknowledge in the Doha Declaration on TRIPS and Public Health that
developing countries with “insufficient or no manufacturing capacities in the pharmaceutical
sector could face difficulties in making effective use of compulsory licensing under the TRIPS
Agreement”.54 In 2003, to address this problem, a Decision of the General Council enabled
developing countries to import drugs made under compulsory licences abroad until 2007.
TRIPS has been amended to make this suspension permanent, but it needs to be ratified by
two-thirds of the WTO members to come into effect. The Review urges the Government to
take whatever steps it can to ensure that this amendment comes into effect before the
temporary suspension elapses in December 2007. It also believes that the Government should
look favourably on any future proposals to amend TRIPS that may be necessary to address the
public health crisis in developing countries.
Recommendation 7: Government should encourage WTO members to ratify the

amendments to TRIPS to make importation of drugs easier and cheaper.
FLEXIBILITY
4.67 Globalisation and technical changes have had significant impact on the IP system. It
is vital that in both the rights and the ‘exceptions’ to those rights, which limit the control of
the rights owner, the IP system is robust and able to cope with technological and
environmental changes so it can continue to facilitate innovation and ensure public support.
Fair dealing and exceptions to copyright

4.68 Copyright arises automatically for written, recorded and other creative works. There
are exceptions for a number of uses that would be unlikely to occur in a pure free market. For
example, if a documentary maker films a scene in a building where a number of photographs
are permanently displayed, he would have to seek permission from each of the copyright
owners (if there were no exception). The transaction costs of these permissions would be
prohibitive and would probably prevent the documentary from being made.55 In addition, a
number of uses consistent with basic rights, for example copying a book into Braille, would
infringe copyright in the absence of an exception. These two arguments provide the rationale
53
Article 31(f).
54
Paragraph 6 of Doha Declaration.
55
Excuse and Justification in the Law of Fair Use: Transaction Costs Have Always Been Only Part of the Story, Gordon,
W.J., Journal of the Copyright Society of the USA, 149, 2003.

4 INSTRUMENTS
for ‘fair dealing’ or ‘fair use’ exceptions. There is concern that, at present, the UK exceptions,
are too narrow and that this is stunting new creators from producing work and generating
new value.
Exceptions can 4.69 The USA has a more flexible ‘fair use’ exception than the UK and outlines four tests
create value which the use of a work must meet in order not to infringe copyright.56 This broader approach
to copyright exceptions has opened up a commercial space for others to create value. For
example, Google’s ability to ‘cache’ websites, effectively copying content without having to
seek permission first, has been ruled as a fair use of other people’s copyrighted material. Judge
Robert C. Jones of District Nevada Court ruled: “The automated, non-volitional conduct by
Google in response to a user’s request does not constitute direct infringement under the
Copyright Act”.57 In the UK, such provisions were only introduced in 2002.58 Google explain in
their response to the Call for Evidence: “The existence of a general fair use exception that can
adapt to new technical environments may explain why the search engines first developed in
the USA, where users were able to rely on flexible copyright exceptions, and not in the UK,
where such uses would have been considered infringement”.59
4.70 ‘Fair uses’ of copyright can create economic value without damaging the interests of
copyright owners. As well as being more flexible, the exception can be interpreted more
broadly. The film West Side Story, which grossed $43.7 million ($39.9 million when adjusted
for inflation), may be considered a reworking of Romeo and Juliet, which is out of copyright.
This figure indicates that works which build on others can be extremely valuable, and also are
not necessarily substitutes for the original work – indeed, it is not the case that West Side Story
has made Romeo and Juliet less popular or less commercially successful.
4.71 Finally, it should be noted that not all creators are opposed to their work being used
to create economic value for someone else. Creative Commons licences use licensing to limit
copyright protection and facilitate others using the work.60 Fifty million such licenses have
been issued, two-thirds of which allow for derivative works, and a quarter of which allow their
work to be used for any purpose.
Allowing private 4.72 There is currently no provision in UK law for private copying. In many European
copying will states, such as Germany and France, as well as in the USA, a private copying exception exists.
improve clarity The lack of a private copying exception in the UK makes it illegal, for example, to copy music
from a CD that one has purchased onto a computer or MP3 player that one has also
legitimately purchased. Much of the British public is unaware or unconcerned that their
actions are prohibited under the law. In June 2006 the BPI announced that “we believe that we
now need to make a clear and public distinction between copying for your own use and
copying for dissemination to third parties and make it unequivocally clear to the consumer
that if they copy their CDs for their own private use in order to move the music from format
to format we will not pursue them.”61
56
Under section 107 of the USA Copyright Act.
57
Reported in http://www.theregister.co.uk/2006/01/27/google_cache_copyright_breach_ruling/.
58
By the Electronic Communications (EC Directive) Regulations 2002 (SI 2002/2013).
59
Call for Evidence submission, Google.
60
Creative Commons is only a licence and relies on copyright; it is not a separate legal model.
61
Evidence from BPI to House of Commons Select Committee for Culture, Media and Sport Inquiry into New Media and
the Creative Industries.

INSTRUMENTS 4
4.73 Format shifting music for personal use from CDs to another media is an entirely
legitimate activity. It is essential to reflect this clearly in the law. Rapid technological change
has altered the way that media is recorded, stored and played. As such, private copying should
enable users to copy media on to different technologies for personal use.
4.74 Under the Information Society Directive, countries are able to enact a private copying
exception provided that ‘fair compensation’ is given to rights holders.62 In France, Germany
and many other countries levies are exacted on hardware and blank media. One of the main
problems with levies is that they are blunt instruments: the amount is fixed and therefore does
not reflect the number of times a device is used, nor can it compensate for each individual
copy. It is also not clear that royalties are accurately remitted to rights holders as it is very
difficult to determine whose music is being copied. The European Commission is reviewing
the entire body of copyright law, and is specifically investigating whether levies work.
4.75 The Review believes it is possible to create a very limited private copying exception
without a copyright levy.63 If rightholders know in advance of a sale of a particular work that
limited copying of that work can take place, the economic cost of the right to copy can be
included in the sale price. The “fair compensation” required by the Directive can be included in
the normal sale price. This means, however, that any private right to copy cannot be extended
retrospectively as copies of works already sold would not include this “fair compensation”.
Therefore, collecting societies may wish to consider making a single block licence avilable to
allow consumers to format shift their back catalogues ligitimately.
4.76 There should be some strict limits on the scope of any private copying exception. The
Review recommends that the private copying should be limited to ‘format shifting’ (i.e.
transferring a work from CD to an MP3 player or from a video tape to DVD) rather than simply
allowing any copies to be made for private purposes. The exception would only allow one
copy per ‘format’, but it would also have to recognise that transfer between formats may
require intermediate steps (or formats) to be taken.64
Recommendation 8: Introduce a limited private copying exception by 2008 for format

shifting for works published after the date that the law comes into effect. There should be
no accompanying levies for consumers.
Private copying 4.77 Many users in the Call for Evidence outlined problems in using material for genuine
for research academic purposes. Fair dealing for the purposes of non-commercial research and private
should apply to study, permitted by section 29 of the CDPA excludes copying sound recordings or film, which
all media is inconsistent and adds to the cost of negotiating rights for sound recordings and films.
Recommendation 9: Allow private copying for research to cover all forms of content.
This relates to the copying, not the distribution, of media.
62
Article 5(2)(a) and (b) of Directive 2001/29/EC.
63
Recital 35 of the Directive 2001/29/EC states “in cases where rightholders have already received payment in some other
form, for instance as part of a licence fee, no specific or separate payment may be due.... In certain situations where the
prejudice to the rightholder would be minimal, no obligation for payment may arise” [Review’s emphasis].
64
Further, as with other exceptions, where a work that is copied legitimately under the private copy exception is
subsequently dealt with (e.g. it is sold, let or hired or communicated to the public) it would become an infringing copy.
See, for example, section 70(2) and (3) of the CDPA.

4 INSTRUMENTS
Libraries require 4.78 There are copyright exceptions which enable libraries to copy material for readers’
exceptions for “private and non-commercial study”. It is up to individual librarians to determine whether
the digital age the copy will be used for private and non-commercial study, which can be problematic. The
Libraries and Archives Copyright Alliance reports that “InfoSoc means that not-for-profits
and charities now do not fall under exception for copying for research”. The British Academy
argues that the exception ought to cover all scholarly research, but that there may be an issue
with NGOs that have a commercial wing. As such, it proposes that any use that does not
conflict with normal exploitation of a work, i.e. the sale of the work, should be exempted.
4.79 The British Library response to the Call for Evidence, highlighted that the UK has far
more stringent restrictions on copying for archiving and preservation than other countries. As
Table 4.2 shows, library permissions in the UK are out of step with other countries in three
areas: the number of copies allowed, the types of works that may be copied for preservation,
and format shifting.
Table 4.1: What libraries are allowed to do

Are there restrictions on the type Are there restrictions in In the digital environment
of in-copyright work that can be statute on the numbers are there restrictions on
copied by libraries for heritage of copies that can be format shifting an
and archive purposes? made by libraries? original work for
preservation?
Denmark None None1 None
France Not covered in French law Not covered in French law Not covered in French law
Germany None None2 –
Japan None None1 None
Spain 3 None None None
UK Sound, film and broadcast One copy only Permanent or semi-
excluded permanent format
shifting not permitted in
copyright law
USA None Three copies only None
1
Both respondents said that in reality this was limited by reasonableness.
2
A German High Court ruling has interpreted the legislation to mean no more than seven copies.
3
This reflects Spain’s new copyright law, which is currently being ratified in the Spanish Congress.
Source: British Library.

INSTRUMENTS 4
4.80 In the digital world, opening a document on screen creates an additional copy of a
work. Other countries take an approach guided by the principle of ‘reasonableness’ which
65
seems a far more sensible and flexible approach than the current UK approach.
Sound and film 4.81 The CDPA provides exceptions to copyright on literary, dramatic or musical work for
cannot be archivists in national libraries.66 However, the exception does not include sound recordings,
preserved by television shows or films.
libraries
4.82 This is problematic for works on unstable media, such as celluloid films. Of American
feature films of the 1920s, fewer than 20 per cent survive; and for the 1910s the survival rate
falls to half of that. This presents a problem for the British Library. It is cheaper to digitise films
when they are still in a good condition than to wait until they are out of copyright to digitise
and restore them. As the copyright term is long, many films and sound recordings will have
degenerated completely before they can be copied freely. It costs $40,000 to preserve a single
colour film by copying it back on to film, compared with $200 per hour of footage to digitise
film.67 The prohibitions on format shifting exacerbate this problem.
4.83 The inability of the British Library and the other depositary libraries and archives to
make archive copies of sound recordings even for preservation raises real concerns for the
protection of cultural heritage. Nelson Mandela’s Rivonia trial speech was recorded in 1964
on dictabelt. This format has fallen out use and the hardware is no longer available. The
British Library is unable to copy this for preservation without clearing the rights, and there is
a risk that the medium will deteriorate before copyright expires. As already extensively
detailed, the rights clearance process for old material is extremely burdensome. Many sound
recordings held in the Sound Archive are orphan works and therefore the Library is not able
to copy the work legally. The costs to preserve sound increase as technology moves on, as
shown in Chart 4.6. Therefore waiting until recordings are out of copyright will result in the
loss of many recordings and will substantially increase the costs of preservation.
65
See section 17(6) of the CDPA.
66
Section 42 states: “The librarian or archivist of a prescribed library or archive may, if the prescribed conditions [i.e. for
preservation] are complied with, make a copy from any item in the permanent collection of the library or archive
... without infringing the copyright in any literary, dramatic or musical work, in any illustrations accompanying such a work
or, in the case of a published edition, in the typographical arrangement.”
67
Brief of amici curiae the internet archive, Eldred v. Ashcroft; based on http://www.loc.gov/film/plan.html, and Experience
of Internet Archive, interview with Brewster Kahle.

4 INSTRUMENTS
Box 4.5: Cost to digitise sound recordings for preservation

It is important to note in regard to sound, as well as other digital media, that the potential
obsolescence of carrier formats and playback hardware, plus the increased need to reverse
engineer formats, all generate higher costs.a
Chart 4.6: Cost to digitise sound recordings for preservation

600
490
500
Cost per hour: pounds
400
300
211
200
100 69 65 49 47 41
19
0
78 RPM Vinyl LPs Open Reel Acetate Cassette Betamax VHS CD
Tape discs Tape
Audio Carrier
Source: British Library.
a
Call for Evidence submission, British Library.
Prohibitions on 4.84 Given the costs of copying on the same medium, and the advances in technology
format shifting which allow works to be viewed in a number of ways, the limitation on format shifting seems
limit the ability to constrict the potential that libraries have to preserve and share cultural goods. As also
to archive mentioned above, this is a particular issue for film and sound recordings. Format shifting
provisions ought to apply to all items held within the library for the purposes of preservation.
Recommendation 10a: Amend section 42 of CDPA by 2008 to permit libraries to copy

the master copy of all classes of work in permanent collection for archival purposes and to
allow further copies to be made from the archived copy to mitigate against subsequent
wear and tear.68
Recommendation 10b: Enable libraries to format shift archival copies by 2008 to ensure
records do not become obsolete.69
Enabling 4.85 In the USA, the fair use exception allows ‘transformative works’. The purpose of this
transformative exception is to enable creators to rework material for a new purpose or with a new meaning.
use will spur Such new works can create new value, and can even create new markets.
innovation
68
The Review believes that amending section 42 of the Copyright, Designs and Patents Act 1988 to allow replacement
copies of sound recordings and films is appropriate and permitted by Article 5(2)(c) of Directive 2001/29/EC, of the
Information Society Directive.
69
This would be permitted by Article 5(2)(c) of Directive 2001/29/EC, the Information Society Directive.

INSTRUMENTS 4
Box 4.6: The rise and fall of creativity in Hip Hop has, in part, been
attributed to limited application of transformative use exception
Such an exception in US law enabled the Hip Hop industry to develop in the late 1970s and
early 1980s, allowing producers to sample older works to create a new genre of music and
to develop an entirely new market. In 1991, a decision against rapper Biz Markie’s
appropriation of a Gilbert and Sullivan song in the case Grand Upright v. Warnera changed
practices dramatically. In Bridgeport Music Inc. v. Dimension Films, it was ruled that samples
which rise “to a level of legally cognizable appropriation”b have to be licensed, but that de
minimis sampling was still to be considered fair use. This was reversed in the appeal to this
case, where the court ruled the three-note sample was not fair use and that musicians
should “get a license or do not sample”.
Musicians now have to clear rights with the owner of the sound recording and the
publisher and negotiate a license fee before using a sample. Chuck D argues that the
narrowing of the transformative use exception means that the “whole collage element is
out the window”. When asked about how the change in the IP framework had affected
their work, The Beastie Boys commented that “we can’t just go crazy and sample
everything and anything like we did on Paul’s Boutique. It’s limiting in the sense that if
we’re going to grab a two-bar section of something now, we’re going to have to think
about how much we really need it”.c Importantly for music, clearance is required for the
performance and for the composition, although in the USA legal precedent suggests that
obtaining clearance for the sound recording is sufficient.d In the UK, however, this does not
appear to be the case. A notable example of this was The Verve’s single “Bitter Sweet
Symphony”, which used an unlicensed sample from an orchestral version of The Rolling
Stones’ song “The Last Time”. The sample was derived from the song (not the
performance) and was deemed to infringe copyright. As such, The Verve were ordered to
pay 100 per cent royalties to Mick Jagger and Keith Richards.
a
780 F. Supp. 182 (S.D.N.Y. 1991).
b
Bridgeport Music Inc. v. Dimension Films, 230 F. Supp.2d 830, 841 (M.D. Tenn. 2002).
c
http://www.wired.com/wired/archive/12.11/beastie.html
d
see Newton v. Diamond and Others (2003)349 Fd.3 591 (9th Cir. 2003).
4.86 Transforming works can create huge value and spur on innovation. “Good artists
borrow; great artists steal.” So said Pablo Picasso, borrowing from Igor Stravinsky, or perhaps
from T. S. Eliot.70 Hip hop is not the first genre to ‘sample’ music: composers from Beethoven
to Mozart to Bartok to Charles Ives have regularly recycled themes, motifs, and segments of
prior works.71 Under the current copyright regime, these creators would need to clear
permission and negotiate licences to avoid infringement suits.72 The barriers that new
musicians have to overcome are extremely high, and the homogenisation of hip hop music is,
critics argue, a direct response to the costs of clearing rights.
70
‘A good composer does not imitate; he steals’, Stravinsky 1.; ‘Immature poets imitate; mature poets steal’, Eliot T.S.
71
From J.C. Bach to Hip Hop: Musical Borrowing, Copyright and Cultural Context, Arewa O., 84 N.C.L. Rev. 547, 630, 2006.
72
Copyright’s Paradox: Property in Expression/Freedom of Expression, Netanel N., forthcoming.

4 INSTRUMENTS
4.87 The crucial point should be whether transformative use compromises the
commercial interests of the original creator or offends the artistic integrity of the original
creator. Judge Posner’s decision in the ‘Beanie Baby’ case argued that in determining whether
use can be considered ‘fair use’, the courts ought to consider the impact of the new work on
the sales of the older work. There are now certain things that should be considered when
assessing ‘fair use’:
• commercial interests: When the US Supreme Court ruled on Campbell v.

Acuff- Rose Music, Inc.,73 concerning 2Live Crew’s “Pretty Woman” parody of
the Roy Orbison song, the court argued that the new work did not impact on
the commercial success or viability of the original work; and
• artistic integrity: The moral rights of the creator are inalienable, as such any
work which builds on previous creation is subject to the moral rights of the
original creator. Enabling transformative use would not negate existing moral
rights, the right to be identified and the right to object to derogatory
treatment. Creators would still be able to use defamation laws to prevent
works that are offensive or damaging to the original creator from being made
available.
4.88 At present it would not be possible to create a copyright exception for transformative
use (but see the discussion of parody below) as it is not one of the exceptions set out as
permitted in the Information Society Directive.74 However, the Review recommends that the
Government seeks to amend the Directive to permit an exception along such lines to be
adopted in the UK.
Recommendation 11: Propose that Directive 2001/29/EC be amended to allow for an

exception for creative, transformative or derivative works, within the parameters of the
Berne Three-Step Test.75
4.89 There is currently no exception in copyright to parody works. The BBC commented in
its submission to the Call for Evidence that an exception to cover parody in the UK would:
“facilitate the broadcast and sale of programmes containing material included

under, for example, fair dealing.”
4.90 As well as reducing transaction costs across Europe, an exception to enable parody
can create value. Weird Al Yankovic has received 25 gold and platinum albums, four gold-
certified home videos and two GRAMMYs® by parodying other songs, but he had to ask
permission from rights holders. Furthermore, many works which are considered to have high
value could be considered parodies, for example Tom Stoppard’s Rosencrantz and
Guildenstern Are Dead. The Information Society Directive specifically allows for “caricature,
parody or pastiche”,76 and the Review recommends such an exception should be introduced
into UK law.
Recommendation 12: Create an exception to copyright for the purpose of caricature,

parody or pastiche by 2008.
73
114 S.Ct. 1164 (1994).
74
Article 5 of Directive 2001/29/EC.
75
The Berne Three-Step Test outlines the maximum extent of exceptions to copyright. Under Article 13 of TRIPS,
signatories such as the UK agree to “confine limitations or exceptions to exclusive rights to certain special cases which do
not conflict with the normal exploitation of the work and do not unreasonably prejudice the legitimate interests of the
rights holder”.
76
Article 5(3)(k) of Directive 2001/29/EC.

INSTRUMENTS 4
Orphan works
4.91 The term ‘orphan work’ is used to describe a situation where the owner of a copyright
work cannot be identified by someone else who wishes to use the work. Whenever someone
wants to copy or use a work it is necessary to go through a number of steps. First, they must
determine whether something is ‘in’ copyright. This is made difficult by the range of different
terms and the fact that in many cases term is dependent on the death of the author. It is often
extremely difficult to trace authors. When works stop being commercially available it
becomes even more difficult to track down biographical information. Estimates suggest that
only 2 per cent of all works that are protected by copyright are commercially available. In
1930, 10,027 books were published in the USA, but by 2001 all but 174 were out of print.77 The
British Library estimates 40 per cent of all print works are orphan works.
4.92 Even if users are able to find some information about the author, publisher or
distributor this may not be sufficient to identify the rights holder. The author may have
assigned copyright to a third party. Furthermore, copyright held by businesses can be lost
through ‘abandonware’: when businesses go bankrupt or merge copyright ownership,
information can be lost. The problem is made still more difficult in the UK, where there is no
copyright registration system detailing ownership.
4.93 This is a large problem for many users, including those who wish to make copies for
archiving or preservation and need to seek permission. The Chair of the Museum Copyright
Group, Peter Wienard, believes that from the total collection of photographs of 70 institutions
(around 19 million), the percentage of photographs where the author is known (other than for
fine art photographs) is 10 per cent. In a British Library study to get permission to digitise 200
sound recordings, researchers were unable to identify the rights holders for almost half the
recordings.78
77
The Economic Structure of Intellectual Property Law, Posner R. and Landes W., 2003. Source: American Library Annual and
Book Trade Almanac for 1872–1957.
78
Call for Evidence submission, British Library.

4 INSTRUMENTS
Box 4.7: Experiences of clearing rights for orphan works

The US experience
• A report by the Carnegie Mellon University Libraries details a systematic study of
the feasibility of obtaining permission to digitise and provide web-based access for
its collection, during which it discovered that for 22 per cent of the books in the
study, the publishers could not be found.
• At a rough estimate, the exercise cost $200 per title for which permission was
granted.
• Cornell University librarians estimated that obtaining permission to create a
digital archive of 343 monographs cost the library $50,000, and still it was not able
to identify the owners of 58 per cent of the monographs.
The British Library experience
• The British Library is currently undergoing a protracted process of clearing over
4,000 hours of sound recordings as part of a British Library sound portal funded by
the Joint Information Systems Committee.
• In the late 1980s, the Library made 220 oral history recordings of jazz musicians
and promoters. The majority of the recordings were made by the British Library
at the time, and as many permissions as possible were applied for and received by
the Library from the interviewees, as well as some of the interviewers/sound
recordists who were not Library employees.
• Between May 2005 and February 2006, 200 identifiable outstanding permissions,
were applied for. Of these, only half had permissions granted and a quarter were
orphan works.
4.94 One of the key problems with orphan works is that permission is needed in order to
make any copy of certain work. As discussed earlier, permission is required for the purposes
of restoring sound recordings and films that are degenerating for preservation. This is
especially an issue for films, many of which are on unstable formats.
Orphan works 4.95 Many works that lie unused could create value. For example, the film It’s a Wonderful
can create value Life 79 lost money in its first run and was ignored by its original copyright owners. When the
owners failed to renew their copyright in 1970, it was broadcast on the Public Broadcasting
Service channel in the USA. It is now a family classic, and worth millions in prime time
advertising revenue. The book The Secret Garden, since copyright has expired, has been made
into a movie, a musical, a cookbook, a CD-ROM version, and two sequels. For works still in
copyright, if users are unable to locate and seek permission from owners, this value cannot be
generated. For example, documentary makers often find it impossible to track down the
rights owners of old pieces of film, many of which have multiple owners, all of whom are
untraceable, and are not able to use older works to create new value.
79
Dir. Capra F., 1946.

INSTRUMENTS 4
A number of 4.96 The US Copyright Office published a report on orphan works in January 200680 which
solutions have examined the extent of the problem and outlined potential solutions. The system that they
been proposed to preferred is one of limited liability. This means that users of orphan works are still infringing
solve this copyright. However, if they have conducted a ‘reasonable search’ they cannot be sued for
problem infringement if the owner subsequently emerges. The copyright owner will be eligible to
receive remuneration from the user of the orphan work. The fee would represent a proportion
of the value generated by any commercial uses of the work. The user would then have to
negotiate a fee for any continued use of the work. For non-commercial uses of the work, the
owner will be able to request that the work is no longer used and, if the user complies, no
remuneration is necessary, but they will also be able to negotiate the terms for continued
use.
4.97 Across the spectrum of the creative industries, there is recognition that solving the
problem of orphan works is good for everyone. A solution is good for all those who are
involved in archiving and cataloguing; for all those creators who use older works to create
new value; for those whose work is restored and who may benefit from remuneration from a
new source; and for consumers.
4.98 In a paper for the Gowers Review, the British Screen Advisory Committee outlined a
proposal for an exception to copyright to permit the use of a genuine orphan works, with a
number of provisions detailing the scope of the exception. This would operate very similarly
to the US ‘light touch’ approach.81
4.99 Currently, such an exception would be incompatible the UK’s obligations under the
Information Society Directive.82 There are currently discussions at the European level to
introduce provisions to enable Member States to create a solution to the orphan works
problem. The UK Government should work with Member States to amend the Directive to
allow such an exception. Any such exception should permit the use of genuine orphan works,
provided the user has performed a reasonable search and, where possible, gives attribution.
Recommendation 13: Propose a provision for orphan works to the European

Commission, amending Directive 2001/29/EC.
Guidelines will 4.100 One of the key components of any solution to the orphan works problem will be
reduce developing the parameters of a ‘reasonable search’. The British Library recommended that the
uncertainty and requirement be ‘best endeavours’, but users may still need a guide as to what constitutes a
costs thorough search to protect them from liability. As such, we recommend that the Patent Office
works with groups of rights holders, collecting societies, libraries and archives to establish
clear guidelines for ‘reasonable searches’.
80
Available at: http://www.copyright.gov/orphan/orphan-report-full.pdf.
81
Copyright and Orphan Works, British Screen Advisory Council, 2006.
82
Directive 2001/29/EC. Article 5 of this Directive sets out the permissible exceptions to copyright and none of these
seem to envisage a commercial orphan works exception.

4 INSTRUMENTS
4.101 The loci for ‘reasonable searches’ will vary by medium. For example, someone
wishing to track down the rights holder of a piece of music must consult Catco, the UK record
industry’s sound recordings database, and follow up on any biographical information held
there. For a work of literature, one must search at the British Library, and for film at the
National Film and Television Archive. Given that many searches require knowledge of the date
of death of the artist and the subsequent owners, this would have to be reflected in the search
parameters. A registration system of copyright would greatly facilitate such a search.
However, compulsory registration is contrary to international treaty obligations.83 It would be
desirable for the UK Patent Office to host a voluntary register, where rights owners could
deposit information as to their location and their named estate, or to provide a portal service
for users to access existing private registration scheme.84
Recommendation 14a: The Patent Office should issue clear guidance on the
parameters of a ‘reasonable search’ for orphan works, in consultation with rights holders,
collecting societies, rights owners and archives, when an orphan works exception comes
into being.
Recommendation 14b: The Patent Office should establish a voluntary register of
copyright, either on its own or through partnerships with database holders, by 2008.
Digital Rights Management

4.102 Digital rights management tools (DRMs) are sequences of digital code that restrict
certain uses of copyrighted material. For example, they prevent consumers from transferring
films stored on DVD to a computer hard drive. DRMs have two functions:
• accountant; currently it is difficult to track what music is played where, and

therefore it is difficult for collecting societies to remunerate artists. DRM
‘watermarks’ can track usage electronically to report information back to
collecting societies to ensure distribution of royalties is fair; and
• policeman; DRM can limit the access to content, for example, to prevent
copying.
4.103 In June 2006, the All Party Internet Group (APIG) published a report on DRM. It stated
that DRM will never be entirely effective, but can remove temptation for the ‘casual copier’.
APIG notes that “because DRMs can almost invariably be circumvented, a legal framework is
needed to prevent unauthorised copying at a commercial scale, and in the UK this is provided
by the CDPA”.
Article 5(2) of the Berne Convention for the Protection of Literary and Artistic Works.
83
There are voluntary registers available, for example the UK Copyright Service. However, to ask users to check all the
84
voluntary registers would increase transaction costs substantially.

INSTRUMENTS 4
Box 4.8: Issues with DRM technology
1. Technical protections can enable restrictions that go beyond protecting content to
price discrimination in different EU markets:
• for example Apple iTunes charges 79p in the UK and 68p in the EU for a single
music track, without the possibility of arbitrage.
2. DRMs can prevent uses permitted under fair dealing exceptions, and DRM tools do not
necessarily expire when copyright expires:
• the Adobe eBook reader gives authors the ability to prevent readers from
electronically copying an insubstantial part of text – despite such copying not being
a copyright infringement; and
• the British Library’s submission to the Call for Evidence noted that the great
majority of agreements relating to electronic licences undermined exceptions
provided for in UK and international copyright law.
3. DRMs can damage users’ computers and can put limits on what users can and can’t do
with the products:
• some DRMs load up proprietary software or devices which may harm users’
computers or necessitate upgrades. In 2005 one record company was threatened
with legal action over anti-piracy protection on CDs that automatically installed
‘rootkit’ software that could damage hard drives and violated users’ privacy; and
• some CDs will only play on two devices before locking.
DRM trumps 4.104 DRMs can prevent activities permitted under the exceptions. For example, the Royal
copyright law National Institute for the Blind (RNIB) note that Adobe eBooks usually have ‘accessibility’
settings disabled. This prevents the visually impaired exercising their rights to make copies in
accordance with the exceptions introduced by the Copyright (Visually Impaired Persons) Act
2002.85 Such exceptions ought to be respected by technology.
4.105 The Information Society Directive recognises that DRMs may be used to prevent
legitimate copying and Article 6(4) requires Member States to ensure that technical measures
do not preclude a person from benefiting from certain copyright exceptions. This obligation
has been implemented in UK law.86 If a person cannot exercise a permitted right due to a
DRM, they must issue a ‘notice of complaint’ to the Secretary of State, who can then issue
directions on how to ensure that the permitted act can be performed. As yet, no-one has filed
a complete notice of complaint, yet both the Consumer Project on Technology (CPT), an IP
research body, and the RNIB told the APIG committee that this process is “slow and
cumbersome”.
Improve notice of 4.106 The Review recommends that the procedures in place for circumventing DRM to
complaint allow copying for uses deemed legitimate under copyright exceptions ought to be made
procedures easier, for example through a model email form available on the Patent Office website.
Recommendation 15: Make it easier for users to file notice of complaints procedures
relating to Digital Rights Management tools by providing an accessible web interface on
the Patent Office website by 2008.
85
Section 31A of the CDPA.
86
See section 296ZE of the CDPA.

4 INSTRUMENTS
4.107 DRMs can be legitimately employed, and where they are they should be robust. The
Review believes there is a need for clearer guidance on DRM for users, and encourages the
DTI to work with industry looking into labelling media. In the event that companies use
DRMs to create market power, damage users’ software or invade their privacy, the Review
recommends that the Office of Fair Trading undertakes investigations. The Review also
supports the DTI investigation into the EU single market, but notes that the key example of
DRM being used to segregate markets, namely differential pricing on iTunes, may be a result
of negotiations with collecting societies in varying countries and not simply an issue arising
from the use of technical protection measures.
4.108 The Review will make further recommendations on the way policy is formulated in
the Chapter 6 and notes that any future policy formulated on DRM ought to be consulted on
widely, with the views of all stakeholders, including consumers, libraries and creators, taken
into consideration.
Recommendation 16: DTI should investigate the possibility of providing consumer

guidance on DRM systems through a labelling convention without imposing unnecessary
regulatory burdens.
Clarify the UK position on new rights

There have been 4.109 There are concerns that a ‘one size fits all’ patent system may not provide the right
calls for new incentives to innovate in new areas of technology, such as software and genetics. Many fast-
rights paced industries create new products at high speed, so the time it takes to get patent
protection is too long and the life span of the invention is too short for the costs to be
recouped in the monopoly period. The boundaries between patentable and unpatenetable
business methods and computer programmes are very unclear.
Additional rights 4.110 Additional layers of rights increase the problems with boundary conditions. At
increase present, new bands are advised to trade mark their name, thus retaining perpetual rights over
transaction costs their name even when their recordings or compositions have passed into the public domain.
Databases can still be protected by copyright as well as database rights. Where different IP
rights overlap, exceptions that apply to one IP right may be barred by restrictions relating to
another. Introducing additional layers of protection is likely to encourage firms to game the
system in order to get as much protection for their products as possible. Creating more rights
could unnecessarily strengthen protection for products that are already protected adequately
by other forms of IP.
4.111 Additional layers of rights also have high costs. First, there will be significant costs in
devising specialised systems to record and award the new rights; and new training and
recruitment costs to administer and advise on the new right. Second, there could be high
costs in challenging the new rights. It is vital that sui generis rights are properly targeted. It is
difficult for government to try to predict the technologies of the future and second guess the
investment requirements for such new technology. Four main issues were raised in the Call
for Evidence: utility model patents; software patents; biotechnology and genetic patents; and
business method patents.
4.112 The requirements for patentability are high, and the costs of protection are high. As
such, some users of the IP system have called for the UK to introduce a ‘utility patent’. This
would be a second tier of patent protection for inventions which can be obtained quickly and
at a lower cost, but which will have a shorter duration. In 2004, the European Commission
Enterprise Policy Indicators showed that the countries with innovation as an area of strength

INSTRUMENTS 4
were Finland, Denmark, Sweden and Germany. Sweden has no second-tier system, while
utility model systems in Finland and Denmark are relatively new, having been introduced in
1991 and 1992 respectively. Other countries that do have utility model patents, such as Italy
and Spain, were defined as having weak innovation systems. There seems to be no correlation
between the existence of a utility model patent and innovation. Rather, strong innovation
seems to be caused by a high prevalence of innovative sectors, for example Finland and
Germany have large electronic and transport industries respectively.
4.113 While a utility model may reduce costs for some, there is a concern that it will
increase the costs for other users and stunt future innovation. More patent protection can
limit the ability of future inventors to create new products. Introducing a new layer of
protection will increase boundary problems, and a new right could lead to an increase in
litigation. The Review has therefore decided not to recommend the introduction of utility
model patents. It makes a number of other recommendations in Chapter 5 to reduce the costs
of acquiring patent protection.
There is little 4.114 There have been calls in the UK to introduce pure computer software patents to
evidence that ensure that innovation is properly protected and encouraged. In Europe, patents are not
software patents granted for computer programs as such,87 but patents have been granted to computer-based
increase innovations provided they have a technical effect. In the USA, pure computer software
incentives patents can be granted. The evidence on the success of pure computer software patents is
mixed. The software industry in the USA grew exponentially without pure software patents,
suggesting they are not necessary to promote innovation.88 The evidence suggests software
patents are used strategically; that is, to prevent competitors from developing in a similar
field, rather than to incentivise innovation.
4.115 In addition to the concerns that increased protection does not increase incentives,
some have commented that pure software patents do not meet the criteria for patentability.
The most profound problem with using patent law to protect software is that innovation in
the field is usually accomplished in increments too small to be viewed as inventive steps.89
Several submissions to the Call for Evidence, for example the Professional Contractors
Group’s submission, argued that software should not be patentable in principle. Where
freelance businesses develop software, they rely on copyright to protect it. This protection is
free and automatic. The copying of as little as 1.7 per cent of a program’s code has in the past
been found to be infringement of copyright.90
4.116 Introducing pure software patents could raise the costs for small software developers
to mitigate against risks surrounding R&D, thereby inflating the capital needs of software
development. Sun Microsystems argued that without exceptions that allowed for reverse
engineering for interoperability, pure software patents could stifle competition.
4.117 Last year, the European Parliament rejected the Computer Implemented Inventions
Directive, but this issue has been raised again. The economic evidence suggests that such
patents have done little to raise incentives to innovate, and other evidence suggests that the
introduction of such patents will have a chilling effect on innovation. In the absence of such
evidence, a new right for pure software patents should not be introduced, and so the scope of
patentability should not be extended to cover computer programs as such.
87
Section 1(2)(c) of the Patents Act 1977 and Article 52(2)(c) and (3) of the European Patent Convention.
88
Benson Revisited: the Case Against Patent Protection for Algorithms and Other Computer Program-Related Inventions,
Samuelson P., 1990. The Patent Paradox Revisited: An Empirical Study of Patenting in the US Semi-conductor Industry,
Hall B. and Ziedonis R., RAND Journal of Economics, 2001, Protecting Their Intellectual Assets: Appropriability Conditions
and Why US Manufacturing Firms Patent (or Not), Cohen W., Nelson R. and Walsh J., Management Science, 2002.
88
A Manifesto Concerning the Legal Protection of Computer Programs, Samuelson P. et al., 94 Columbia Law Review. 2308,
2344-46.
90
Call for Evidence submission, Professional Contractors Group.

4 INSTRUMENTS
The USA is out of 4.118 The Review is concerned that business method patents fail to meet the criteria for
step with Europe patentability; namely that inventions are non-obvious and novel. In Europe, business
on business methods are not patentable as such, while in the USA business models are patentable.91
method patents
4.119 There is some evidence from the USA that patents on business methods are not
necessary for incentivising innovation, and that the costs to develop business methods are
low and therefore the products ought not to qualify for a full term of patent protection. There
are additional practical concerns with increasing business method patents. In a 2001
consultation, the Patent Office reported that SMEs were particularly concerned about
business method patents potentially increasing the regulatory burden.
Gene patents 4.120 Concern was raised in some responses to the Call for Evidence regarding the
may stunt patentability of genetic material. It is worth noting that the European Patent Convention and
downstream Patents Act 1977 explicitly excludes discoveries from patentable subject matter.
innovation
4.121 The proliferation of patents in this field has an anti-commons effect in the USA,
where multiple owners each have a right to exclude others from a scarce resource and no-one
has effective privilege.92 For example, the genetic research company Myriad has a patent on
the breast-cancer-causing BRCAI gene. This enabled the company to claim rights over all
diagnostic screening tools. The owners of this patent exercised their exclusive rights by
bringing infringement suits against organisations such as the Marie Curie Institute in Paris,
which was conducting tests on breast cancer tissues, ordering that samples should be sent to
the company’s labs in Salt Lake City. The EPO struck this patent down.
4.122 The Review supports the current position on pure software patents, business method
patents and gene patents, and recommends that changes to the current position should only
be made in light of economic evidence that such changes would enhance innovation to offset
the considerable costs.
Recommendation 17: Maintain policy of not extending patent rights beyond their
present limits within the areas of software, business methods and genes.
C O N C LU S I O N
4.123 This chapter has made a number of recommendations to ensure that the instruments
of IP are balanced, coherent and flexible. Chapter 5 will analyse the operations of these
instruments in the UK and make recommendations to ensure that the award, transaction and
enforcement of IP is transparent, comprehensible and affordable.
91
Evidence from the Oxford Intellectual Property Research Centre and Olswang suggests that patents “may be obtained
by claiming and new inventive, technical method of implementing a business method”. [The First Mover Monopoly,
OIPRC].
92
Can Patents Deter innovation? The Anticommons in Biomedical Research, Heller M. and Eisenberg R., Science, vol. 28, 1
May 1998.

5 O P E R AT I O N S
5.1 This chapter is concerned with the way in which the instruments of the Intellectual
Property (IP) system operate. It is split into three sections, detailing how IP is awarded, used
and enforced. As identified in Chapter 3 the ideal IP system should display the following
characteristics:
• award of IP rights should be affordable, comprehensible, swift, predictable

and transparent, with only high-quality rights granted;
• use of IP should allow ease of buying, selling, licensing, securitising and

observing IP rights; and
• enforcement of IP should be swift, affordable and judicious.
5.2 The structure and operations of UK IP courts and of national and regional patent
offices including the UK Patent Office, European Patent Office (EPO), Office for
Harmonisation in the Internal Market (OHIM) and World Intellectual Property Organization
(WIPO) have been discussed in chapter 1. This chapter reviews how the three strands of
operations currently function, and identifies problems and makes recommendations on how
to address them.
AWA R D
5.3 The way in which IP rights are awarded must be affordable, transparent, swift,
consistent and accessible to all users.
Wo r k s h a r i n g
Patents are 5.4 It is often necessary, especially in today’s global economy, for inventors to seek patent
granted protection in a range of countries where there is an existing or prospective market for the
nationally product or process. However, there is no ‘international patent’ that grants protection
throughout the world and therefore patents must be obtained in each country where
protection is sought. To facilitate and simplify the procedures, attempts have been made to
harmonise national patent laws.
5.5 The Patents Cooperation Treaty (PCT) instituted a procedure where a single
application is made which leads to a bundle of national patents. The PCT has two phases. The
first phase, the ‘international phase’, is conducted centrally; the second phase, the ‘national’
(or ‘regional’) phase, is conducted by national patent offices (or regional patent offices such
as the EPO).
There is 5.6 During the ‘national’ or ‘regional’ phases, all patent applications are searched,
considerable examined and, if thought to be patentable, granted by each national office where patent
duplication of protection is required. The initial phase of the PCT application results in an ‘international
effort search report’ and a preliminary examination report on patentability, but most countries do
not rely on these and conduct their own search and examination procedures. Accordingly,
there is a substantial duplication of effort. In 2005, nearly 1,000 patent applications were filed
directly in the UK from Japan and nearly 4,000 were filed from the USA. The processing of
these applications may be further ahead in the country of first filing. By the time the UK
Patent Office is ready to conduct a search of the prior art (information already in the public

domain),1 it is likely that the Patent Office in the country of first filing has already conducted
such a search. In 2005, the UK Patent Office examined nearly 5,000 patents that had already
undergone search in at least one other jurisdiction.2
5.7 Parallel search is undesirable for a number of reasons:
• cost – patent applicants must pay fees to every national patent office to search
and examine an application. Although the criteria for patentability and the
prior art in the USA and Japan3 are slightly different from those in the UK, the
material that will be searched by an examiner will be similar. Accordingly,
conducting multiple searches is a waste of resources. In 2002, UK companies
filed 2,060 PCT applications. If protection were sought throughout Europe, the
USA and Japan, each of these patents would be searched and examined by the
European Patent Office (EPO), Japanese Patent Office (JPO) and United States
Patent and Trademark Office (USPTO). The total cost for the searches would
be around £1,350.4 By contrast, the application and search fees in the UK are
only £130;5
• time delays – this duplication of effort increases national patent offices’

workloads and creates backlogs. The USA had a backlog of nearly half a
million applications in 2005.6 This increases the amount of time taken to issue
patent protection, which adds to costs for the applicant and adds to the time
that follow-on innovators have to wait before they can access information
contained in the patent and build on it themselves. The UK Patent Office does
not have extensive delays and is able to start processing applications in most
fields of technology soon after they are filed, but problems are still faced by
British businesses and individuals when filing patents abroad. This can also
cause a drain on resources in developing countries, many of whose patent
offices are engaged largely in issuing IP protection for foreign inventors; and
• lower quality – in response to these spiralling backlogs many patent offices

have set targets to speed up patent applications. However, this has led to fears
that searches will be less thorough and that consequently patents granted
could be subject to more legal challenges, leading to greater uncertainty.
5.8 One solution to this problem is to establish work sharing arrangements between the
various patent offices around the world. Patent offices would share information on patent
search (and possibly also examination results) where it is relevant to the application for a
patent in another country. Further harmonisation of patent law, for example on patentable
subject matter, would naturally expand the scope for work sharing.7
5.9 Any work sharing will require national offices to produce reliable searches and
examinations upon which other offices will be able to base patent grants. The table below
illustrates which areas of patent applications could be covered by work sharing arrangements
between Japan, the USA and Europe.
1
Under section 17 of the Patents Act 1977.
2
UKPO Annual Report, 2006.
3
The USA and Japan are both ‘relative novelty’ countries meaning that use of a patent outside the USA or, as the case may
be, Japan does not anticipate the invention. This contrasts with the EPO and UK, which both adopt ‘absolute novelty’
standards meaning use anywhere in the world will anticipate the invention.
4
Based on Patent Office data – EPO: application/filing £109, search £653 and designation fee £51, USPTO:
application/filing £172, search £286, JPO: application/filing £79.
5
See Patents (Fees) Rules 1998 (SI 1998/1778), Part A of the Schedule.
6
http://news.com.com/Patent+Office+chief+endorses+legal+reform/2100-1028_3-5683954.html.
7
This may be possible as the Substantive Patent Law Treaty progresses.

O P E R AT I O N S 5
Table 5.1: The scope for work sharing between Japan, the USA, and
European Patent Convention (EPC) contracting states
Potential for
Japan US EPC work sharing?
Patentability Novelty Yes Yes Yes

Inventive
step Yes Yes Yes Yes
Industrial
application Yes Yes Yes
Continuation in part Yes
Early publication Yes Yes
6 months,
limited
Grace period 6 months 12 months disclosure No
Patentable subject Business
matter method Yes Yes
Plant variety Yes Yes
Software Yes Yes
Source: Japanese Patent Office.
5.10 The JPO has been active in looking at useful, long-term solutions to accelerate patent
applications and reduce duplication of effort. Its solution is known as the ‘Patent Prosecution
Highway’ (PPH) and involves mutual sharing of search and examination results between an
Office of First Filing and an Office of Second Filing. The JPO explains how the proposed
solution would work:
“On condition that patent application X is determined to be allowable in Country A,

the corresponding patent application X in country B will be deemed as qualified for
accelerated examination through a simple procedure.”8
5.11 Trilateral discussions between the EPO, JPO and USPTO have resulted in a pilot of the
PPH being agreed between the JPO and USPTO.
Recommendation 18: The Government should encourage the EPO to pursue work
sharing with the USPTO and JPO.
5.12 The UK has already contracted out some search and examination work to the Danish
and Netherlands Patent Offices with high success rates. This is different from work sharing as
it is simply using extra capacity at other national patent offices to perform searches on behalf
of the UK Patent Office. Nevertheless, it demonstrates that one office can have confidence in
and rely upon searches conducted by another office. The Patent Office has also been engaging
directly with the USPTO, JPO and EPO to discuss work sharing. Examiner exchanges between
offices have shown approximately an 80 per cent identical response to search9, which is a
promising basis on which to build.
8
Patent Prosecution Highway: Solution to Timing of Work and Maximisation of Benefits of Exploitation of Other Offices’ Search
Results, Japanese Patent Office, 2006.
9
Patent Office Information.

Recommendation 19: Patent Office should pursue work sharing arrangements with
EPC member States, and trilaterally with the USA and Japan to reduce cross-national
duplication of effort.
C o m m u n i t y Pa t e n t
EPO patent 5.13 In 1973, the members of the EEC at that time and others, including Switzerland,
applications created the European Patent Convention (EPC). The EPC provides a single standard for
result in a patentability across the contracting states10 and established the EPO. Under this regime, a
bundle of patent application undergoes search and examination at the EPO. If the application is granted
national patents it leads to a bundle of national patents. Any infringement or revocation actions11 are
conducted in relation to each national patent.
5.14 While the EPO regime is preferable to a system of wholly independent national
patents there are a number of problems:
• parallel litigation – once a patent has been granted by the EPO, each patent is
subject to the laws and procedures of the states in which it applies. No verdict
by one national court can bind the decision of another. This means that if a
patent proprietor successfully proves in one country that this patent has been
infringed the judgment does not bind, and does not even necessarily predict,
the outcome in another state. One famous instance of divergent verdicts was
the Epilady case where the UK and German courts reached opposite verdicts.12
As well as being costly to litigate similar infringements in separate states, the
current system increases uncertainty for patent proprietors;
• renewal fees – after the EPO has granted the patent, any further renewal fees
are paid to national offices, rather than a single renewal fee being paid to the
EPO. This unnecessarily adds to patent renewal costs. The approximate cost to
renew a European patent, across only six countries,13 over ten years is £3,810
in renewal fees.14 In the USA, renewal fees to the tenth year are £1,830.15 In this
estimate, the size of the market in terms of population would be
approximately 377 million compared to a market of 298 million in the USA;16
• translation costs – at present, a European patent will only be valid if it is

translated (or applied for) in the language of the relevant country.17 Therefore,
a patent application filed in English would not have effect in France or
Germany until it is translated into respectively French and German. The cost
10
It adopted much of the earlier Convention on the Unification of Certain Points of Substantive Law on Patents for
Invention (Strasbourg Convention), which was another Council of Europe Convention.
11
It is, however, possible to oppose the grant of a European patent centrally provided this is done with 9 months of grant.
12
http://www.publications.parliament.uk/pa/cm199899/cmselect/cmtrdind/380/9051106.htm. The cases are reported at Improver
v Remington (1989) RPC 69 (UK); Improver v Sicommerce/Remington (1990) IIC 572 (Ger). Different reasoning was also given in
the Netherlands, see Beska & Remington/Improver (1990) IIC 586 (Hague, CA) and (1990) IIC 589 (Hague, DC).
13
Renewal in all signatory states to the EPO would, of course, be far greater.
14
Based on an average patent which is issued in 6 states. Years 3-4 EPO renewal fees; years 5-10 member state renewal
fees. Estimate source: Treasury analysis of Patent Office data.
15
Patent Office Data.
16
Based on UK, Germany, France, Spain, Italy and Switzerland estimated population.
17
The rights accruing on publication (under section 69 of the Patents Act 1977) presently only apply where an English
translation of the specification is available: but see the Patents (Translations) Rules 2005 (SI 2005/687) which will remove
this requirement if, and when, the London Agreement comes into effect.

of translations substantially increases the cost and introduces delays for the
applicant, as well as lengthening the time it takes for other innovators to view
the details of the patent.
5.15 A proposed solution is a unitary Community Patent (COMPAT). This would be a

single right covering the whole community with single application and litigation procedures.
The Review strongly believes COMPAT would resolve the issue of duplicated litigation and
also make the levels of renewal fees more rational and cost effective. The Review recognises
that difficulties remain surrounding translations. In particular the fact that a patent
application filed and granted in some Community languages may be difficult for innovators
in the United Kingdom to understand without paying for their own translations.18 However, it
believes that these problems can be overcome and that, on balance, the advantages of such a
system greatly outweigh the disadvantages in the long term. Accordingly, the Review supports
a workable Community Patent. In the meantime, there are interim approaches such as EPLA
and the London Agreement, which can deliver real benefits and work with the grain of an
eventual COMPAT solution.
Recommendation 20: Continue to support and expedite the establishment of a single

Community Patent through negotiations in Europe.
The London Agreement

Translation costs 5.16 Once the EPO has granted a patent it is necessary for a translation to be filed before
for European the resulting national patent has effect in a particular country.19 The average length patent
patents are high application, at 22 pages, costs approximately £950 to translate. Assuming this is translated
into five different languages, the average number of foreign states for which protection is
sought, it will cost £4,700. If it were translated into the languages of all states contracting to
the EPC it would cost £20,200.20
5.17 The problem caused by translation costs has been recognised for many years. In 2000,
the signatory states of the EPO negotiated the London Agreement. This Agreement provides
that an application filed in any of the official languages of the EPO (English, French or
German) need not be translated into any other language to take effect in a country which has
ratified the Agreement. The right to require that claims are translated at the time of grant into
languages other than the official languages would be retained.
5.18 In order to come into force, the London Agreement must be ratified by eight
contracting states, including France, Germany and the UK. It currently has eight signatories,
including Germany and the UK, and requires ratification by the French to come into force.
The London Agreement has been strongly supported by many responses to the Call for
Evidence, including the Stockholm Network and Microsoft who note that translations of
patents into each country’s national language account for the biggest part of European
patent costs.
18
The problem may be worse in other member States as it is likely that most applications would be filed in either English
or German if COMPAT trends follow those of the EPO.
19
See the note above on the rights accruing on publication.
20
The London Agreement: European Patents and the Cost of Translations, EPO, 2006.

5.19 Given the significant benefits of the London Agreement, the UK should continue to
work with the French Government towards ratification.21 It should also encourage other EPC
States to ratify the Agreement.
Recommendation 21: Government should support the London Agreement as an

interim step towards COMPAT, and as an improvement in its own right.
Quality assurance
High quality 5.20 Patent quality refers to how well the patent was prepared and examined and how well
patents should the patent meets patentability requirements. Patent quality is different from technical merit
avoid impeding and patent value. The patent for a truly pioneering invention can be poorly prepared and
competition examined and therefore of high technical merit but low quality. A patent for a commercially
insignificant invention can be optimally prepared and examined and therefore of high quality
but low value. It is crucial that patents awarded are not too broad in scope and meet the
patentability criteria, otherwise innovation will be stunted.
5.21 If a high proportion of patents that are challenged are held to be valid, this suggests
the granting office has granted a high quality patent. Conversely, high numbers of patents
being declared invalid suggests poor quality patents have been awarded. Revocation
proceedings determine whether the patent grant is valid, and can also therefore be used as an
indication of patent quality. It is common practice for a declaration of invalidity to be
included as a counter-claim to an infringement claim.22
5.22 Legal proceedings that result in the removal of poor quality patents will improve the
quality of the stock of patents. More importantly, the quality of new patents being awarded
can be improved. This can be achieved by a stringent application of the novelty test and the
inventive step test, by more observations being submitted, or by introducing pre-grant
opposition procedures.
5.23 The UK Patent Office has generally shown that it grants patents of a good quality. In
recognition of the quality of work at the UK Patent Office, the Office received “ISO 9001:2000”
re-certification for its pre-grant patenting process in 2006 with the award extended to cover
its commercial patent search services operation. ISO is the International Standard for quality
management systems. The UK Patent Office is the first Patent Office in the world to attain and
retain this award. However, there is still scope to improve the performance of the Office.
5.24 One important factor in maintaining quality of grant is ensuring that patents are
examined properly for whether they involve an ‘inventive step’.23 In recognition of this, this UK
Patent Office ran a consultation on the inventive step requirement during the period of this
Review.24 The results of that consultation are yet to be published. The Review agrees with the
Patent Office that it is important that the ‘inventive step’ is set at the correct level. If it is set
too high, not enough patents will be granted for genuinely inventive products. It is also
important for international coherence: if the UK Patent Office makes it too difficult to satisfy
21
It should be noted that the French Constitutional Court has ruled that the ratification of the London Agreement would
not be contrary to the French Constitution: Decision 2006-541 – 28th September 2006.
22
Of course, as so few patents are litigated, decisions in invalidity cases are not always indicative of the number of patents
not reaching quality levels, particularly as it is likely that only the ‘lower’ quality patents reach litigation rather than settle
earlier in the dispute.
23
The requirement to have an inventive step is set out in section 3 of the Patents Act 1977, which states that something
involves an inventive step of it is not obvious to a person skilled in the art, having regard to any matter which forms the
state of the art (also see EPC Article 56).
24
The consultation document is available at: www.patent.gov.uk/consult-inventive.pdf.

the inventive step requirement, but the EPO has a lower standard, applicants will simply
apply to the EPO ensuring their applications are treated more generously. If the inventive step
is too low, too many non-innovative patents could be granted which prevent genuine
innovators from obtaining IP rights.
5.25 Once a patent application has been published,25 it is possible for observations on the
patent to be filed by a third party.26 Third parties place observations drawing attention to facts
they believe have a material bearing on whether the patent should be granted, and what
scope it should have. The examiner decides how to take account of observations.
Observations are useful as they provide more information to the examiner. The observation
procedures at the UKPO are rarely used: only about 1 in 200 applications which undergo
substantive examination (where a patent examiner determines whether a patent meets the
criteria for grant) have observations filed against them. There is limited incentive for
companies to file observations against a competitor if they are aware of prior art, instead they
may be able to force a licence post grant by exerting that prior art. Also, those who file
observations are not involved in the observation process and are only informed of the
outcome. The graph below shows the number of observations at the UK Patent Office in 2004
and 2005, with a slight increase in the last year.
Chart 5.1: Observations made on patentability at the

UK Patent Office 2004-2005
60
50 5
Number of observations
40
30
47
20
35
10
0
2004 2005
Observations rejected (application granted or terminated)

Applications with observations filed
Source: Patent Office data.
5.26 Observations made under this procedure are known as ‘section 21’ observations. The
process for making observations should be streamlined to encourge use. The Patent Office
should undertake initiatives to make patents against which observations can be filed clearer
and easier to view, and therefore make it easier to access the observations process. Awareness
of the observation process should be raised through the Patent Office website. Online file
inspection should allow easier access for the third party raising the observation to view the
25
This is normally 18 months after the (declared) priority date: see rule 27 of the Patents Rules 1995.
26
Section 21 of the Patents Act 1977.

discussion between the applicant and the examiner. This would make it easier for the third
party to make points of clarification if necessary, assisting the patent examiner to make a
better judgement.
Recommendation 22: Maintain a high quality of patents awarded by increasing the use
of ‘section 21’ observations: streamlining procedures and raising awareness.
5.27 The EPO has patent oppositions post-grant. The oppositions allow a party to
challenge the grant of a European patent within nine months of it being granted.27 This
procedure was introduced to allow for a single challenge to be made to the European patent
rather than requiring revocation proceedings to be started in each country where the patent
has effect. The opposition procedure at the EPO can take from three to four years and has on
occasion taken as long as sixteen years. During the time the European patent is subject to
opposition it leaves the extent of the patent proprietor’s rights in doubt. The Review does not
therefore recommend patent opposition procedures, either pre-grant or post-grant, at the UK
Patent Office, because they can add significant time delays to patent grants. The Review
outlines a number of other recommendations to improve the quality of patents.
Community 5.28 Professor Beth Noveck, Director of Institute for Information Law and Policy at the
Patent Review New York Law School, has recommended a system of Community Patent Review.28 Her
could improve proposal is intended to harness the collective knowledge of experts through the Internet in
quality of patents order to help patent examiners find the right citations. The public is invited to submit prior
granted art via a webpage, which can then be rated by the community. The rewards for submitting
prior art are largely reputational.
5.29 The intention of Noveck’s project is to ensure that bad patent applications are not
granted and to narrow claims in applications in order to narrow the scope of protection. The
project should also accelerate the process of searching prior art at the patent offices and
enhance the assumption of patent validity. Ultimately, it should improve the quality of the
patents granted. The diagram below shows how the Community Patent Review process is
designed.
27
Part V of the EPC.
28
Peer to Patent: Collective Intelligence for our Intellectual Property System, Noveck B., 2006.

Chart 5.2: Community Patent Review process diagram
Source: Community Patent Review Project Summary
5.30 The USPTO will launch a one-year pilot of ‘open review’ in early 2007 which will
involve 250-400 patents.29 Several large software firms have agreed to their patent applications
being put through Community Review. This Review believes that the Community Review
process could significantly enhance the quality of patents granted. Given the different context
of the UK market, the Review believes that a pilot should be conducted in parallel in the UK
in 2007.
Recommendation 23: The Patent Office should conduct a pilot of Beth Noveck’s
Community Patent Review in 2007 in the UK to determine whether this would have a
positive impact on the quality of the patent stock.
5.31 Many newer areas of science are moving exceptionally quickly, such that innovators
and patent examiners may be unaware of much prior art of relevance to patent applications.
5.32 The training patent examiners receive in new areas of new technology should be
increased to ensure that all patents granted are of a high quality. The Patent Office trialling of
patent clustering techniques should be used to identify future technology hotspots and thus
enable the training of patent examiners to be more pre-emptive in these areas. Increasing ties
between research establishments and the Patent Office can help facilitate this. This stream of
work as well as Community Patent Review can be taken forward through the Patent Office for
the 21st Century programme.
Recommendation 24: The Patent Office should develop stronger links with universities
and other research institutions, including through short placements, to ensure that IP
examiners are aware of recent developments in technology.
29
Community Patent Review project summary, accessed at http://dotank.nyls.edu/communitypatent.

F a s t Tr a c k s y s t e m f o r p a t e n t s a n d t r a d e m a r k s
Patents and 5.33 The processing time for applications for patents and trade marks is especially
trade marks important in areas of fast-moving technology where product lifecycles are reducing. It
should be currently takes between six and nine months from filing a trade mark application for it to be
granted quickly granted (including three months for opposition proceedings). For patents, the average time
between the filing of a request for substantive examination to the patent being granted is
eighteen months and the average time from the date of filing of an application to the patent
being granted was 28 months in 2005.30 This is significantly faster than the average time from
filing to grant at the EPO, which was 46.2 months in 2004,31 but in a fast moving business
environment there are clearly advantages in streamlining the system further.
5.34 Delays in grant time reduce the attractiveness of technologies to potential investors,
which can be a particular problem for SMEs. Speed to market is the single biggest issue for
successful, innovative companies. Consequently, providing timely protection for patents and
trade marks is crucial.
Fast track 5.35 The Patent Office already provides a fast track service for accelerated examination,
services for and combined patent search and examination (CSE) neither of which incur a greater fee. In
patents exist 2005-06, a third of applications going through examination were for combined search and
examination or accelerated examination not under the CSE process.32 Lack of use of this
system may result from a lack of knowledge of the availability of the process or from strategic
decisions by business in order to delay grant. Some businesses may prefer a slower process as
this establishes their priority date over an idea, and gives them extra time to develop their
product before deciding whether to incur the full costs of registration. Others will seek fast
grants to provide certainty.
5.36 The EPO project BEST (Bringing Examination and Search Together) is similar to the
CSE available at the UK Patent Office. This is intended to improve efficiency at the EPO and
reduce backlogs. This has allowed applicants to have a single point of contact and thus
improved end-to-end service. It was used for 124,000 searches and 30,500 examinations in
2004.33
5.37 Clearly, to some extent there is a trade-off between awarding rights quickly and
awarding rights of a high quality. For example, it can take up to two years for relevant prior art
to appear on external search databases, so speeding up the grant process means prior art
cannot be fully assessed before grant. For this reason standard grant procedures carry less risk
of an unpublished parallel application emerging after grant. The current patent fast track
system available should be improved to allow for a comprehensive, “accelerated grant”
process. This should enable rights to come into effect more quickly.
Recommendation 25a: Introduce accelerated grant process for patents to complement

the accelerated examination and combined patent search and examination procedures.
30
Patent Office Data.
31
European Patent Office Annual Report, 2004.
32
Patent Office Data.
33
EPO Business Report, 2004.

Trade mark 5.38 In today’s fast moving business environment products are regularly launched within
registration short timescales. The Patent Office recently consulted on ending the practice of refusing
applications on the (relative) grounds34 that the mark applied for conflicts with an earlier
trade mark.35 The Review supports the proposal of the Patent Office to end such refusals and
to continue searches for the purpose of notifying applicants and others. The Review also
notes that this will potentially make it possible to speed up the processing of trade mark
applications. The Review proposes that a fast track system (in addition to the normal system)
should be available to allow for trade marks to be examined and accepted within 10 days of
the application being filed. Once the application is accepted it can be published and
thereafter the 3-month opposition period would begin. This fast track system should be
accompanied by a higher fee.
Recommendation 25b: Introduce fast track registration for trade marks.
USE
5.39 It should be as easy as possible to buy, sell, license, securitise and observe IP rights
both in the UK, and for British firms abroad. Moreover, competition authorities must have the
ability to curb any abuse of monopoly power stemming from IP rights.
Business advice
Businesses 5.40 Businesses negotiating the complexity of the IP system require advice concerning:
have limited application for IP; legal advice on how to defend IP; and advice on how to manage IP
knowledge of IP internationally. Legal advice in particular is expensive. While these costs fall on all businesses,
they are particularly onerous for SMEs, as NESTA highlighted in its submission. Public
provision of IP advice in the UK is currently patchy.
5.41 The Patent Office has run IP awareness initiatives for businesses. It also provides
information to Companies House, which is passed to new companies when they register.
While users have found this information beneficial, more can be done. Currently information
provided to new businesses through Companies House focuses exclusively on the means of
trade marking the company name. Providing generic information to all enterprises through
Companies House is a cost-effective way of reaching business. The Patent Office could
supplement this advice by providing a basic guide to the IP system. It could usefully include
information about what types of IP rights exist, what kind of ideas they apply to, and how they
can be obtained and used.
Recommendation 26: The Patent Office should provide comprehensive information on

how to register and use IP rights for firms registering with Companies House.
5.42 In addition to providing information when a business is set up, it is important to

increase awareness of IP for the existing businesses. One interesting example of advice
provided to SMEs is the IP Genesis project in France, described in Box 5.1 below.
See section 5 of the Trade Marks Act 1994.

34
The Consultation is available at: http://www.patent.gov.uk/consult-relative.pdf; and the responses are published at
35
http://www.patent.gov.uk/response-relative.pdf.

Box 5.1: Case study - French Patent Office IP Genesis

The project IP Genesis at the French Industrial Property Office offers a free IP audit to
SMEs who are not using the IP system, especially the patent system. This encourages these
SMEs to consider IP in a strategic fashion having received expert advice. The service was
used by 464 French SMEs in 2005, the vast majority of which were for SMEs with between
1 and 20 employees. The level of satisfaction with the project was high and 51 per cent of
participating firms subsequently applyed for some form of registered IP protection.a
Clearly, the increase in the levels of IP is not a measure of success in itself, but indicates
that the firms who had participated in the scheme had increased awareness of IP and how
it might be applicable to their business.
a
Pré-diagnostics propriété industrielle, INPI (French Industrial Property Office), 2006.
5.43 The Patent Office could ensure that the information it provides reaches business
through greater collaboration with Business Link offices. Currently this relationship is fairly
ad hoc. A more formal relationship could entail Business Link collecting and distributing best
practice data alongside Patent Office information. In addition it should inform the Patent
Office what businesses’ questions are in relation to IP. This symbiotic relationship would
enable the Patent Office to tailor information provision and specific advice programmes to
emerging business needs.
Recommendation 27: Improve SME business IP support by establishing formal

collaboration between the Patent Office and Business Link and by conducting a pilot
replicating the French ‘IP Genesis’ scheme.
5.44 Businesses are particularly unaware of the international system of IP rights. The
Confederation of British Industry (CBI) estimates that approximately 70 per cent of
businesses are unaware that domestic IP does not provide protection abroad. Given this low
knowledge of foreign IP regimes, it is unsurprising that UK firms take out little foreign IP. The
UK ranks fifteenth in terms of triadic patent applications per million population. And in 2002,
only 4.8 per cent of EPO applications came from the UK compared to 19.1 per cent from
Germany, 27.3 per cent from the USA and 17.4 per cent from Japan.36 Notwithstanding the fact
that patent quality is more important than pure numbers, the level of UK applications seems
inordinately lower that than for other comparable economic areas. Improved business advice
on patenting abroad should aim to increase international applications and subsequently
increase presence of UK businesses in international markets. As well as filing a small amount
of patents in Europe, the UK is lagging behind in Chinese patent applications, as Chart 5.3
shows.
36
Compendium of Patent Statistics, OECD, 2005.

Chart 5.3: Top ten foreign countries, and the UK, filing
patent applications in China, per million inhabitants, 2005
300
Applications per million inhabitants 250
200
150
100
50
ce
a
y
en
an
ds
)
d
ar
an
re
th
US
lan
an
lan
lan
ed
p
nm
Ko
(18
rm
Ja
Fr
Sw
er
Fin
er
De
Ge
h
UK
itz
th
ut
Sw
Ne
So
Source: SIPO statistics, 2005.
5.45 Currently, information is provided to UK firms expanding abroad by UK Trade and

Investment, an agency of the DTI. Other countries, such as Japan, have links with key
embassies abroad to ensure that either there is an IP expert at the embassy or there is a link
between embassies to offer tailored advice. IP Australia has established a Marketing
Department that provides IP guides, multimedia products, case studies and seminars.
Recommendation 28: DTI should investigate how best to provide practical IP advice to
UK firms operating in foreign markets, in coordination with industry bodies, the Patent
Office and UK Trade and Investment.
Knowledge transfer/licensing
Licensing is 5.46 As discussed in Chapter 2, licensing of IP is increasing. Licensing agreements are
crucial to firms generally complex and there are no industry wide standard contracts. The time taken to
negotiate licences varies depending on the relationship between the parties, for example
whether the interaction is friendly or adversarial. Strained licensing negotiations last on
average 3-5 years, and even mutually beneficial negotiations can last approximately 6
months. A delay in getting to market can threaten a company’s position, especially in areas of
fast moving technology such as the computer industry. This was highlighted in several
responses to the Call for Evidence. In addition to being slow, licensing can be costly.
5.47 The Lambert Review of Business-University collaboration37 recommended model

agreements between businesses and universities. These agreements, developed in
consultation with stakeholders, reduce the transaction costs and provide a fair and
transparent contractual arrangement for both parties.
37
Accessed at: www.hm-treasury.gov.uk/media/DDE/65/lambert_Review_final_450.pdf.

Model licences 5.48 Since the introduction of the model agreements, the level and quality of business –
facilitate university collaboration has improved.38 The model licences should be extended to provide a
agreements selection of business-to-business model licences. These should help to reduce the time and
costs of licensing. As an association of blacksmiths noted in its response to the call for
evidence: “a set of standard available templates would help with licences.” Such licences
would be particularly useful for SMEs.
5.49 The Patent Office should start to develop such licenses through Government-
Industry working groups. Analysis of the current Lambert agreements and their strengths and
weaknesses in practice should inform the new model agreements. In particular, one or more
model licences should be developed to assist firms wishing to negotiate licences with
partners at home and abroad.
Recommendation 29: The Patent Office should develop ‘Business-to-Business’ model IP

licences through industry consultation, and assessment of the Lambert model licences.
Licence of right 5.50 One means of increasing the use of information contained in patents is through
patents ‘licence of right’ patents. Under licence of right provisions the patent proprietor pays only
half the patent renewal fee.39 In exchange, a third party can apply for a licence as of right
under terms agreed between the parties, or, failing agreement, by the comptroller, who is the
Chief Executive of the Patent Office. Licences of right can increase liquidity in the market.
However, the take up of these licences is low, at around 0.5 per cent of patent renewals, and
has not increased in recent years. This is partly due to a lack of awareness, especially among
small businesses, and partly due to the unattractiveness of negotiating licensing agreements.
If a model licence was available for licences of right, this could make them significantly more
appealing. In addition to providing a model licence, the Patent Office should publicise the
patents available as licences of right. This would enable innovators to identify rapidly what
patents relevant to their area of R&D are available as licences of right.
Recommendation 30a: The Patent Office should publish and maintain an open
standards web database, linked to the EPO’s esp@cenet web database, containing all
patents issued under licence of right.
Public domain visibility

5.51 After IP protection expires the ideas and their expressions fall into the public domain.
In the public domain this knowledge can be used by follow-on innovators. A good example of
an idea which was never developed whilst covered by patent protection, but subsequently
became hugely profitable in the public domain, is Whittle’s jet engine. The Patent Office
currently publishes both UK patents and European patents (UK) which have expired. These
are available as a list of Patent numbers in the Patents and Designs Journal, published
regularly online by the Patent Office. However, the current format is rather inaccessible.
5.52 The Patent Office should make the publication of inventions which are available for
use more accessible. An easily accessible, open standards database should be provided that
people can draw upon to identify inventions in the public domain. The inventions should be
grouped by subject, with a brief description of the invention so that they can be easily
identified. This should link to esp@cenet patent entries for maximum transparency.
38
Higher Education Business and Community Survey 2005, HEFCE, 2005 accessed at http://www.hefce.ac.uk.
39
Section 46 (3) (d) of the Patents Act 1977.

Recommendation 30b: The Patent Office should publish and maintain an open
standards web database, linked to esp@cenet containing all expired patents.
Access to finance
5.53 As discussed in Chapter 2, despite the rising importance of intangible assets, current
accounting standards in the EU and USA do not satisfactorily capture their value. According
to the Intellectual Assets Centre, businesses are often undervalued by up to 80 per cent
because they fail to take account of their intangible assets.40 This is especially problematic in
the case of IP that has been internally generated, rather than purchased or licensed for a fee.
If intangible assets are not properly accounted for this will lead to sub-optimal investment
decisions being taken by investors.
5.54 As a result of poor valuation of intellectual assets, companies encounter problems

raising venture capital. Access to finance is especially problematic for SMEs. Best practice
guidelines should be developed in order to reduce this reporting gap and the subsequent
impact on businesses. The Review supports initiatives to amend accounting standards to take
account of intellectual assets and in the meantime encourages firms’ voluntary use of an IP
report. An IP report would help to focus a firm on its IP and help to explain how a firm’s IP
relates to its strategy. However, this type of reporting is still in its infancy and is not a perfect
solution to the problem.
Recommendation 31: DTI should consider whether guidance for firms on reporting of
intangible assets could be improved, including the provision of model IP reports.
Professional 5.55 In terms of overall budget, Patent Office fees are generally insignificant
representation (approximately £200 in total to grant a patent) compared to the fees charged by patent agents
comprises the (approximately £300 per hour).41 The total cost of professional patent filing fees ranges from
bulk of costs £1,000 to £6,000.42 These fees can be unaffordable to SMEs. The problem of fees from legal
representation is exacerbated when applying for patents abroad as Table 5.2 shows.
40
Annual Review, Intellectual Assets Centre, 04/05.
41
Call for Evidence submission, Federation of Small Businesses.
42
Patent filing fees for legal advice from Appleyard Lees Patent Attorneys, and Trevor Bayliss Brands plc.

Table 5.2: Typical legal and administrative costs of an international patent application
Timeline Stage International PCT UK patent
patent application application
Time “T” Filing basic UK priority application £1,500 – £7,500 £1,500 – £7,500
T + 12 months International filing application £3,500 – £4,000 –
T + 16 months UK statement of inventorship £600 – £1,500 £600 – £1,500
T + 17 months Demand for international preliminary examination £1,700 –
T + 2 years Response to international preliminary report £500 – £1,500 –
T + 2.5 years Entry to National/Regional phase USA £1,500 – £2,000 –
EPO £2,000 – £5,000 –
Japan £4,000 –
Other countries £1,500 – £4,0001 –
T + 3.5 years Examination under National phase USA £2,000 – £5,000 –
EPO £0 – £2,000 –
Japan £2,000 – £5,000 –
Other countries £500 – £1,500 –
T + 4.5 years Grant procedures USA £1,500 –
EPO £18,000 – £28,0001 –
Minimum likely total cost (USA/EPO/Japan) £38,800
Maximum likely total cost (USA/EPO/Japan) £68,700
Source: Frank B. Dehn & Co. Patent and Trade Mark Attorneys, 2003.
1
Including translation fees.
5.56 In its submission to the Call for Evidence, the Federation of Small Businesses
highlighted the prime difficulty for SMEs accessing registered IP rights as cost, mainly in the
area of IP solicitors and firms of patent attorneys. The Review is not recommending creating
two fee structures at the Patent Office to allow for cheaper fees for SMEs, on the basis that fees
are already very cheap at £200.
5.57 R&D tax credits are available for SMEs (and now larger corporations) but these
specifically do not cover IP applications. Several submissions have called for R&D tax credits
to be extended to help pay for patent agents. The Review is not recommending extension of
R&D tax credits to pay for the acquisition of IP because acquiring IP is not in itself R&D.
Other countries 5.58 There are schemes to support SMEs in other countries. For example, the Welsh
provide support Assembly Government provide grants at up to 50 per cent of costs (within maximum limits)
for SMEs to cover patent agent and Patent Office fees. Invest Northern Ireland also provide matched
funding. Spanish initiatives provide soft or interest-free loans to help with national, European
and international patent applications.43 Enterprise Ireland in some cases will fund the
procedure for obtaining patents in Ireland and abroad; the financial assistance may cover up
to 100 per cent of the costs of the process of obtaining the patent. Some royalties from the
product go back to Enterprise Ireland.44
43
WIPO Workshop on Small and Medium-Sized Enterprises (SMEs) and Industrial Property, WIPO, 2002.
44
Ibid.

Box 5.2: Case study – The Foundation for Finnish Inventions
The Foundation for Finnish Inventions supports and helps private individuals and
entrepreneurs to develop and exploit invention proposals. This can take the form of
general counselling or invention specific advice, evaluation of the market potential and
patentability, funding of patenting and guidance on product development and
commercialisation. Grants or loans are provided which can cover up to 100 per cent of the
costs. The average amount of funding provided per invention is €10,000.
5.59 Some matched funding schemes do exist in England, for example they are provided
by SEEDA (South East of England Development Agency). European grants are available to
regions such as Yorkshire and South Wales. However, there is no nationally coordinated
approach.
5.60 The best source of information on the available funding in England is from Business
Link. It would be useful to connect regional agencies together to provide one coherent source
of what is available so that businesses can be directed to the relevant agencies by the Patent
Office and other organisations.
RDAs and 5.61 The connection between RDAs and Business Link in terms of funding provided
Business Links should be improved. Better advice can then be provided to SMEs on where to find financial
should provide a support within the boundaries of State Aid rules under Community law. This will complement
network of measures in Scotland, Wales and Northern Ireland. These should be available to SMEs and
financial schemes lone inventors and should focus especially on linking with advice on obtaining IP abroad in
order to expand UK firms’ activity in international markets.
5.62 RDA best practice should also be shared to improve the support provided to SMEs
and reduce the burden of patent agent fees. For example, SEEDA has introduced the services
of an IP advisor in order to support clients. This service can provide advice at a reduced rate
on matters such as IP audits, assistance with filing an application, pre-application advice and
licensing. Such RDA best practice should be shared throughout the UK in order to maximise
the support at reduced professional rates.
Recommendation 32: Form a working group with Patent Office, RDA and Business Link
representation, to identify and promote best practice to maximise the use of effective
schemes nationwide.
Collecting societies
5.63 Collecting societies licence rights to use copyright protected content to third parties.
They exist to save licensees the time and cost of negotiating licences with each individual
rights holder. There are several music rights organisations in the UK, the main ones being
Mechanical Copyright Protection Society/Performing Rights Society (MCPS/PRS) and
Phonographic Performance Limited (PPL) who collect royalties dependent on the type of
music rights required. A broad range of people pay these collecting societies, including music
and music video broadcasters, those who play music on business premises and those who
provide music services to mobiles as illustrated in Chart 5.4.

Chart 5.4: A summary of who has to pay collecting societies
PPL
Playing music in public Broadcasting Supplying music to Digital DJ

businesses
UK radio, Internet & television stations DJs to copy sound recordings onto
Location/premises where music is played Companies who supply music services
which use sound recordings in computer for use in clubs, pubs etc.
and heard by the public to other businesses/individuals
transmissions
VPL
Broadcast and public performance of music videos (+ dubbing for these purposes)
Broadcaster or production company making programmes including videos, use of music videos on the internet or mobile technology playing or showing a music video in public
PRS MCPS – PRS alliance MCPS
Play/Supply music on Stage live music TV/radio production Online music and Computer game or
business premises event & broadcasting mobile phone services novelty product
5.64 Owing to the multiplicity of collecting societies, businesses are often required to
obtain several licences to cover all the rights required. For example, shop and bar owners have
to seek multiple licenses to play music on their premises. In several other countries, including
France, Germany and Japan, rights are administered jointly. This can create confusion for
licensees, who have to purchase one licence from PPL for the rights in the sound recording
and a second licence from PRS for the rights in the music and the lyrics. Encouraging a
cross-licensing agreement between collecting societies could be highly beneficial to users.
It could also benefit rights holders if the simpler process encourages licensees to take up
more licences.
Collecting 5.65 Not all rights holders want to licence their work on a commercial basis. Creative
societies find it Commons licences45 arose to provide free licences. Creative Commons licences help the
difficult to owner keep his copyright while inviting some uses of the work: a ‘some rights reserved’
manage Creative copyright. The project began in the USA, but in recent years country specific licences
Commons (including England and Wales, and Scotland) and are now available. Using the Creative
licences Commons website, options can be selected to limit how the work will be used and a model
licence is created straightaway which should satisfy the owner’s requirements.
5.66 At present, Creative Commons licences are drafted in such a way that makes it
difficult for collecting societies to manage Creative Commons licensed works. Collecting
Societies in the UK generally hold an exclusive licence to collect royalties for the copyright
works that they represent. Therefore, artists who are members of collecting societies are
generally unable to license Creative Commons licensed individual works. This issue does not
arise in the USA where, owing to antitrust regulations, collecting societies take a non-
exclusive licence to their members’ works.
45
See www.creativecommons.org.

EU licensing 5.67 The absence of pan–European copyright licences increases the number of licences
arrangements that need to be acquired because rights have to be negotiated for each state. This increases
are complex transaction costs. There are currently EU initiatives to encourage direct cross border licensing
for online music rather than through bilateral agreements. Other forms of copyright such as
licensing of live music performances do not generally encounter the same issues as they are
used in a specific geographic area. The European Commission is currently considering ways
of increasing the transparency of collecting society operations and introducing competition
between existing European societies.46
Recommendation 33: The Review invites the OFT to consider conducting a market
survey into the UK collecting societies to ensure the needs of all stakeholders are being
met.
Role of competition authorities

5.68 It is important that competition authorities scrutinise the behaviour of those seeking
or holding IP rights. Authorities must ensure that agreements relating to the development
and licensing of IP rights do not contain unnecessary restrictions on competition. And they
must also ensure that businesses with market power do not use IP rights in abusive ways.47
5.69 Where a rights holder has a dominant position in the market, imposing an obligation
on them to grant a licence to competitors or third parties (even in return for a reasonable
royalty) would deny the rights holder the ability to fully exploit their rights. The courts have
recognised that such cases are exceptional and would only arise where the refusal by a
dominant undertaking to grant a licence cannot be objectively justified and prevents the
development of the market for which the licence is an indispensable input, to the detriment
of consumers. This may only be the case if the undertaking which requests the licence
intends to produce new goods or services not offered by the IP right owner, for which there is
consumer demand.48
5.70 It should be noted that the role of competition authorities in regulating IP markets
should not extend to price regulation: patents are exclusive rights which enable owners to
charge monopoly prices. However, there should be increased collaboration between the
Patent Office, the Competition Commission and the Office of Fair Trading to establish an
understanding of how healthy competition can flourish in the information market and how
IP can both stimulate and occasionally stunt dynamic competition.
Recommendation 34: Increase cooperation between the UK Patent Office, the Office
of Fair Trading and the Competition Commission to ensure that competition and IP policy
together foster competitive and innovative markets for the benefit of consumers.
46
Study on a Community Initiative on the Cross-Border Collective Management of Copyright, EU Commission, 2005.
47
EC Article 82 and Chapter 2 prohibition under the Competition Act 1998 set out how IP right holders with market
power can behave.
48
See in particular, Joined Cases C-241/91 and C-242/P Magill [1995] ECR I-743, and Case C-418/01 IMS Health GmbH &
Co. OHG v NDC Health GmbH & Co. KG, [2004] ECR I-5039.

ENFORCEMENT
5.71 This section is concerned with enforcement of all types of IP (copyright, trade marks,
designs and patents) against infringement. IP rights, like any other rights, are only as good as
their enforcement. Enforcement of IP rights should be swift, affordable and judicious. The
section sets out four criteria that are necessary for the adequate enforcement of IP rights:
1. awareness of rights – the public must be aware of the rights that exist and find
them reasonable and acceptable;
2. penalties for infringement – there must be adequate sanctions to prevent would-

be infringers from violating IP rights. Penalties can take the form of legal sanctions,
both criminal and civil, or non-legal sanctions, such as codes of practice adopted
by bodies to impose penalties on infringers;
3. pursuit of infringers – it is crucial that those who ignore the law and the penalties
that support it, are adequately pursued by the relevant authorities; and
4. mechanisms to resolve conflict – once an infringer is apprehended by the relevant

authority the rights holder must have the means to enforce legal sanctions through
the courts, or by some means outside of the courts. Chapter 6 will consider the
reform of the courts. This chapter will examine the scope for Alternative Dispute
Resolution (ADR), which takes place outside the courts, and European reforms.
Raising awareness of rights

Public knowledge 5.72 As highlighted in Chapter 2, consumer awareness of IP in the UK is fairly low. In a
of IP is low MORI poll, most respondents had to guess what phrase ‘Intellectual Property’ meant.49
Participants were more aware of elements of IP that are physically observable such as trade
marks, rather than more abstract forms such as copyright and patents. It is more difficult for
consumers to respect rights if they do not know what they are. Respect for IP rights is low and
copying and counterfeiting are seen by many as ‘victimless’ crimes. Recent research carried
out for the audiovisual industry by OTX, showed that video piracy was seen as a less severe
crime than shoplifting and credit card fraud.50
Public and 5.73 The Creative Industries Forum on IP, a cross-industry body brought together by DTI
private bodies and DCMS, developed a scheme under the banner of the ‘CREATE’ principles to explain the
are working to value of IP in today’s economy. In conjunction with the Patent Office and the Department for
raise awareness Education and Skills (DfES), DCMS are presenting these principles to a range of audiences
including policy makers and children, to communicate a positive message on IP. The Patent
Office also developed a very successful resource for schools, the ‘Think kit ®’.
5.74 In a similar vein, three private sector initiatives stand out as good examples of ways
in which public and industry awareness about IP can be increased:
• British Music Rights are acting as industry sponsors for the ‘Quickstart Music’
Programme, which is intended to bring together enterprise and copyright
education in secondary schools. This programme involves setting up a mini-
music enterprise, the students taking a product to market and accruing value
from the exploitation of their copyright. This initiative will help to foster an
appreciation of copyright in young people;
49
Intellectual Property: Public Attitudes, MORI, 2000.
50
Call for Evidence submission, Alliance Against IP Theft.

• Anti Copying in Design (ACID) has initiated a national IP rights education
programme, the ‘Educate to Protect’ campaign, aimed at design schools,
universities and SMEs. The programme is based on case studies and practical
solutions aimed at advising designers on protecting and fully exploiting IP
rights. This has been set up in response to many smaller designers
experiencing copying of their designs and will help designers maximise profit
from their IP rights; and
• the National Endowment for Science Technology and the Arts (NESTA) has
developed and just launched a new module of its mentoring programme
focused on the strategic importance and management of IP – ‘The IP
Accelerator.’ The module is designed for small innovative businesses,
including creative businesses. Following a successful pilot, NESTA intends to
roll out the programme more widely.
5.75 The Review supports and commends education initiatives such as these undertaken
by private and public sector bodies. Education initiatives should extend from school teaching
through to industry, and to general consumer awareness, and should explain the exceptions
to IP rights so that consumers understand the balance in the system.
IP crime 5.76 In order to raise consumer respect for IP, awareness raising should not just focus on
affects all the damage IP crime does to rights holders. Consumers should be made aware of how their
actions affect local business and other people’s lives.
5.77 Many individuals and organisations are harmed by IP infringement. For example the
World Health Organization has estimated that up to a tenth of the world’s medicines are
fake.51 Goods infringing trade marks, such as counterfeit cosmetics, can also be harmful to
consumers. Links between IP crime and organised crime have been well documented.52
Legitimate traders can be forced out of business. A study in the UK on behalf of the British
Anti-Counterfeiting Group estimated the number of jobs lost in the UK due to counterfeiting
is in excess of 4,000.53
5.78 Other countries have raised the profile of IP much more effectively than in the UK. In
Japan levels of knowledge on IP are much higher on average than in the UK. The French IP
website stresses the consumer safety aspect of counterfeit goods. The Review believes that the
message will have more impact if it is presented in a balanced way, highlighting the rights as
well as the responsibilities of consumers. The Consumer Direct website has highlighted
counterfeit goods as an important consumer issue and provides advice to consumers.
Recommendation 35: The Patent Office should continue to raise public awareness,
focussing in particular on the wider impacts of IP crime, and the exceptions to rights.
51
Counterfeit Medicines: Some Frequently Asked Questions, World Health Organization, 2005.
http://www.wpro.who.int/media_centre/fact_sheets/fs_20050506.htm.
52
Proving the connection, Alliance Against IP Theft, 2006.
53
See http://news.bbc.co.uk/1/hi/business/3548928.stm.

Fair and adequate penalties

Legal sanctions 5.79 The penalty for a copyright offence54 depends on whether the infringement occurred
online or not. In relation to those who commercially deal in infringing goods55 or those who
distribute goods other than in the course of business to an extent which prejudicially affects
the rights holder56 the maximum penalty is ten years imprisonment.57 In contrast, those who
commit online infringement by communicating the work to the public (whether commercial
or otherwise) may be sentenced to up to two years imprisonment.58 Finally, the commercial
showing or playing in public of a work carries a maximum of six months imprisonment or a
level five fine.59
Table 5.3: A summary of the current penalties for online and physical
copyright infringement
Online infringement Physical infringement
Nature of offence Communicating to the Making infringing copies Distributing infringing
public by electronic for sale or hire copies in course of
transmission in the business or to extent that
course of a business or prejudicially affects rights
to an extent prejudicially holder, importing
affecting the right holder infringing copy into UK
other than for private or
domestic purposes
Summary sentence (in Up to 3 months in Up to 6 months in prison Up to 6 months in prison
magistrates’ courts) prison and/or statutory and/or statutory and/or statutory
maximum fine maximum fine maximum fine
Sentence on indictment Up to 2 years in prison Up to 10 years in prison Up to 10 years in prison

(in Crown court) and/or unlimited fine and/or unlimited fine and/or unlimited fine
Source: Copyright, Designs and Patent 1988 Act (CDPA) (as amended), Patent Office analysis.
5.80 Several submissions have called for a change in the law to increase online
infringement penalties to the levels for physical infringement. The intention and impact of
physical and online infringement are the same. Crimes committed in the online and physical
world should not be subject to different sentences. Increasing the penalties for online
infringement will therefore make the law more coherent.
5.81 The Review proposes that the penalty for online commercial infringement60 should be
increased to ten years imprisonment to bring parity with commercially dealing (but not
showing) in pirated works. It proposes that the penalty for consumers infringing online61 to an
extent that prejudicially affects the rights holder should also be extended to ten years, again
to bring parity with physical infringement.
Recommendation 36: Match penalties for online and physical copyright infringement by
amending section 107 of the CDPA by 2008.
54
There are similar offences in relation to performers’ rights in section 198 of the Copyright, Designs and Patents Act
(CDPA) 1988. The arguments equally apply in relation to such offences.
55
E.g. the offence in section 107(1)(a), (b) or (d)(iv) of the CDPA 1988.
56
Section 107(1)(e) of the CDPA 1988.
57
Section 107(4) of the CDPA 1988.
58
Section 107(4A) of the CDPA 1988.
59
60
The offence under section 107(2A)(a) of the CDPA 1988.
61
The offence under section 107(2A)(b) of the CDPA 1988.

5.82 One instance of IP infringement which damages rights holders’ investment in IP is
Copycat packaging. Copycat packaging is described in the box below.
Box 5.3: Copycat packaging

Original brand owners bear the costs of trying to prize copycat brands off the market –
either through legal means, or by changing their own designs. The British Brands Group
estimate a decline in sales of up to 20 per cent by the rights holder following the
introduction of the copycat product. Kellogg’s spent £1,100,000 on national advertising
campaign to say it does not make cereals for anyone else.
• Business Insights stated that “private label success is facilitated when consumers
cannot tell a private label from a manufacturer brand due to similarity in
packaging.”a
• Similar packaging resulted in a significant 55 per cent increase in own label share
compared to own labels in dissimilar packaging.
• Similar packaging suggests to consumers that the product is definitely or probably
made by the same company, the practice results in 7.5 million shoppers
being misled.b
• A study by Kapferer showed that similar packaging generated direct correlations
between perceptions of manufacture and perceptions of quality.c
• Consumers Association Research in 1998 gave further insight into the connection
between packaging and consumer assumptions about products
Supermarket product same or better for Quality Value

Copycats 43% 57%
Benchmark 30% 46%
Source: Call for Evidence Submission, British Brands Group.
a
Fighting Private Label, Business Insights, 2005.
b
Ibid.
c
Stealing Brand Equity: Measuring Perceptual Confusion Between National Brands and ‘Copycat’ Own-Label
Products, Kapferer J-N., Marketing and Research Today, 1995.

5.83 If a shape or colour of a product has been successfully registered as a trade mark it
would be possible to rely on infringement to stop the copycat. Regardless of whether or not
the appearance of a product is registered, it may be possible to protect it under the common
law tort of ‘passing off’. This requires:
(a) a party must establish good will or reputation attached to the goods or
services so that it is recognised by the public as distinctive specifically of its
goods or services;
(b) the party must demonstrate that there has been a misrepresentation by the
other party leading or likely to lead the public to believe the goods or services
offered by the other person are those of the party; and
(c) the party must show that it has suffered damage.62
5.84 However, the Review believes that passing off does not go far enough to protect many
brands and designs from misappropriation for the following reasons:
• if copycats appear on the market before the defendant has built up goodwill in
a certain appearance, the brand owner cannot rely on the law of passing off.
This may prevent new entrants from adequately protecting the appearance of
their products; and
• it is difficult to demonstrate consumer confusion in court and substantial

evidence may be required to bring a successful passing off action.
5.85 This is often especially relevant to small designers who are at risk of their designs
being copied before they are able to establish a reputation in the marketplace
Reducing unfair 5.86 A number of submissions to the Call for Evidence called for a general ‘unfair
competition will competition’ law to be introduced. For example, the Law Society highlighted the German law
protect which states that: “acts of unfair competition which are capable of impairing competition to the
investment disadvantage of competitors, consumers or other participants in the market more than
insignificantly are impermissible”. The new European Directive on Unfair Commercial Practices
(UCP Directive)63 is in the process of being transposed in to UK law, and will tackle practices that
unfairly impact on consumers, including practices that mislead or confuse consumers.
5.87 The Local Authorities Coordinators of Regulatory Services (LACORS) have said that
once this UCP Directive is in place they will act on behalf of consumers by pursing businesses
who act improperly. There are concerns, however, with this Directive as it relates to business
to consumer interactions, and it may not provide sufficient legal sanctions for unfair
‘business to business’ anti-competitive practices.
5.88 The Government should monitor the success of these measures in combating unfair
competition in cases relating to IP, and if after a suitable time, the measures are not
adequately addressing these problems, the Government should to consult on appropriate
changes.
Recommendation 37: Monitor success of current measures to combat unfair
competition in cases relating to IP, and if changes are found to be ineffective, Government
should consult on appropriate changes.
62
This comes from Reckitts & Colman Products v Borden (1990) RPC 341, HL (The Jif Lemon Case). There is also an
extended form off passing off which was explained in Erven Warnick v J. Townsend & Sons (1980) RPC 31 (The Advocaat
Case).
63
Directive 2005/29/EC on Unfair Commercial Practices.

Damages 5.89 As a complementary deterrent to IP infringement, changes to damages awarded have
been suggested by several responses to the Call for Evidence. Damage awards should act as a
disincentive to infringement: infringers should not be able to keep any profits from
infringement, nor to pay any less in compensation than they would have paid if they had
purchased or licensed the material legitimately. Some rights holders have suggested that the
current system of damages falls some way short of the ‘effective, proportionate and
dissuasive’ civil remedies that the EU Enforcement Directive requires and that damages
should be increased to provide an effective and proportionate deterrent to IP infringement.
Recommendation 38: DCA should review the issues raised in its forthcoming
consultation paper on damages and seek further evidence to ensure that an effective and
dissuasive system of damages exists for civil IP cases and that it is operating effectively. It
should bring forward any proposals for change by the end of 2007.
5.90 The Review does not recommend criminalising registered design infringement,
particularly since neither the UK Patent Office nor the Community Office at the OHIM
examine design applications on substantive grounds (i.e. to determine whether they meet the
requirements for registration). It is also thought that proving design infringement (including
unregistered design infringement) to a criminal level would be extremely difficult.
5.91 A number of respondents to the call for evidence called for camcording in cinemas to
be criminalized. The Review believes that sufficient legislative responses already exist in civil
remedies. Camcording in cinemas is a civil offence and making a copy of a copyright
infringing good for sale or hire is already a criminal offence. Furthermore, the majority of
pirated DVDs originate abroad. The International Federation of the Phonographic Industry
(IFPI), state that the vast majority of pressed pirate discs come from South East Asia and the
UK is not one of its priority countries for targeted action.64
Non-legislative deterrents to infringement

5.92 As discussed in Chapter 2 peer-to-peer (P2P) downloading is threatening copyright
protected material. Owing to various factors, including the multiplicity of potential infringers,
the barriers to efficient and successful challenge and enforcement of copyright against P2P
downloads remains significant. This jeopardises the value of rights held by content industries.
P2P filesharing 5.93 The entertainment industry has attempted to address the economic consequences of
new technology by pursing legal actions against individual infringers in an attempt to
discourage other individuals from engaging in massive file transfers. However, as Chart 5.5
below shows, such lawsuits have not led to a significant reduction in P2P users.
The Recording Industry Commercial Piracy Report, IFPI, 2004 (can be accessed at http://www.ifpi.org/site-
64
content/library/piracy2004.pdf).

Chart 5.5: Monthly average simultaneous P2P users globally

12
10
8
Million users
0
Aug-03
Sep-03
Oct-03
Nov-03
Dec-03
Jan-04
Feb-04
Mar-04
Apr-04
May-04
Jun-04
Jul-04
Aug-04
Sep-04
Oct-04
Nov-04
Dec-04
Jan-05
Feb-05
Mar-05
Apr-05
May-05
Jun-05
Jul-05
Aug-05
Sep-05
Oct-05
Nov-05
Dec-05
Jan-06
Feb-06
Mar-06
Apr-06
May-06
Recording Industry Association of America P2P use more than
(RIAA) lawsuits against P2P users start here doubles in two
years
Source: BigChampagne, MusicAlly
5.94 Current file-sharing models store the files on the personal computers of the users
with Internet service providers (ISPs) as the intermediaries. ISPs currently have limited
liability for traffic passing through their network due to certain ‘safe harbour’ provisions.65
5.95 Stakeholders within the creative industries have proposed a ‘Value Recognition Right’.
This is still being discussed within the industry and was insufficiently developed for the
Review to take a view on.
5.96 A new act of secondary infringement has also been suggested which would make
those who facilitate P2P file sharing liable for copyright infringement. However, it has been
argued by public interest groups that imposing secondary liability on technology purveyors
would stifle the availability of public domain works and may chill technological innovation.66
If ISPs were liable for content passing through their networks they might limit lawful content,
for fear of breaking the law. There are also doubts that making ISPs liable would be
compatible with Community law.67
5.97 The USA has the concepts of contributory infringement and inducement, which were
used to find liability in the case of MGM v Grokster.68 Australia, like the UK,69 has a concept of
authorisation, which was used in the case of Universal Music Australia v Sharman License
Holdings.70 Notwithstanding some similarities between UK and Australian law, the outcome
of similar lawsuits in UK courts is uncertain. Accordingly, the Review is not making specific
legislative recommendations this area, but this may need to be reviewed sometime in the
future if other measures, as discussed below, do not work satisfactorily.
65
Section 28A of the CDPA 1988 and regulations 17 to 19 of the Electronic Commerce (EC Directive) Regulations 2002
(SI 2002/2013).
66
IP Review, Devinsky P. and Rotstein R., Spring 2006.
67
In particular Article 5(1) of Directive 2001/29/EC and Articles 12 to 14 of Directive 2000/31/EC (E-Commerce
Directive).
68
125 S. Ct. 2764 (2005).
69
70
FCA 1242 [2005].

5.98 ISPs have generally been cooperative in attempts to reduce large scale P2P use
through their networks by providing details of large scale infringers. However, ISPs, as data
processors, have obligations under the Data Protection Act 1988, which limit the extent to
which they can disclose data on P2P copyright infringers without court orders.
Collaboration 5.99 The ISP Association is currently undertaking work to encourage ISPs and rights
between ISPs and owners to collaborate. One part of this work is the development of a Best Common Practice
Creative (BCP) documemt that might enable ISPs to engage rights holders in a co-ordinated and
Industries regularised fashion. This could operate in a similar way to the BCP for ISPs relating to the use
of the Regulation of Investigatory Powers Act (RIPA) by law enforcement agencies.
5.100 The adoption of such a practice is likely to change public attitudes and behaviours as
users gradually become aware of the procedures in place for removal from an ISP. BCP should
assist rights holders by providing a procedure through which automatic action in courts will be
avoided and would allow greater scrutiny on the actions of users. BCP is an ideal way to proceed
if an agreement can be brokered between the ISPs and the copyright owners and would respect
safe harbour provisions for ISPs which were set up in good faith. If there is a failure to agree, the
Government should look towards establishing an appropriate statutory protocol.
Recommendation 39: Observe the industry agreement of protocols for sharing data
between ISPs and rights holders to remove and disbar users engaged in ‘piracy’. If this has
not proved operationally successful by the end of 2007, Government should consider
whether to legislate.
Markets can be 5.101 Car boot sales and markets are also a major source of counterfeit and pirated goods.
sources for A 2005 report co-funded by the Government and industry into consumer usage and attitudes
counterfeit goods towards counterfeits and fakes revealed that roughly 25 per cent of all counterfeit purchases
take place in markets, including street markets and car boot sales.71 In order to address the
issue, the Review recommends that there should be greater regulation of occasional sales.
Recommendation 40: DTI should consult on measures to tighten regulation of

occasional sales and markets by 2007.
Pursuit of infringers by the relevant authorities

The Review 5.102 The National IP Crime Strategy is a partnership between Government Departments,
supports the industry and enforcement agencies, set up to determine policy on enforcing IP rights. It brings
National IP crime together many different organisations including Trading Standards, the Patent Office, the
strategy Police and Her Majesty’s Revenue and Customs (HMRC). Responsibility for its development
sits with the PO, which works with 12 regional groups of Trading Standards offices. The PO has
developed a central IP crime intelligence database, TellPat, to bring together information on
IP crime and the criminals involved from industry and enforcement agencies.
5.103 The first operation carried out under the strategy was a series of raids at Wembley
Market in late 2005. Brent & Harrow Trading Standards led the operation with the
involvement of the Police, the Immigration Service and Job Centre Plus. It resulted in the
seizure of more than £1.5 million of counterfeited and pirated goods and the prosecution of
34 people for trading in counterfeit goods.72
71
Fake Nation, Intellectual Property Theft and Organised Crime Research Project, 2005.
National Intellectual Property (IP) Enforcement Report, Patent Office, 2005 accessed at
72
http://www.patent.gov.uk/enforcereport2005.pdf.

5.104 The Review supports the coordinated approach to IP crime that the strategy
represents. There are some areas, however, where the current IP crime strategy could be
improved. The initial work has been done to bring together the relevant bodies, but further
work now needs to be done to achieve the desired results.
5.105 The graph below shows legitimate and illegitimate trade into the UK broken down by
means of transport. Goods entering via ports account for a larger proportion of trade than of
seizures. Furthermore, UK port seizures are lower in the UK than many other countries
including Germany, Italy and Ireland. The Review encourages HMRC to play a full and active
role to increase sharing of data and monitoring activities at ports.
Chart 5.6: Origin of legal and illegal goods into the UK by

means of transport
100
90
80
70
60
Per cent
50
40
30
20
10
0
Legitimate trade Cases examined
Road Sea Mail Air
Source: EU data, 2004; HMRC data, 2006.
5.106 The Serious Organised Crime Agency (SOCA) recognises IP crime as being linked to
organised criminal activity, and devotes resources to improving the intelligence base
necessary to take action. However, national policing plans do not presently recognise IP
crime as a Police priority as part of broader action against organised crime. It is important to
recognise publicly the work that the Police are doing in this area, and therefore, IP crime
should be acknowledged as an area for action by the Police as part of the work to tackle
organised crime.
Recommendation 41: The Home Office should recognise IP crime as an area for Police
action as a component of organised crime within the updated National Community Safety
Plan.
5.107 The National IP Crime Strategy should also be closely harmonised with enforcement
across the EU to help to reduce counterfeit goods entering Europe. Involvement in
international initiatives outside Europe is also required. The Patent Office has been working
with the USA, China and EU accession states to improve enforcement and reduce the flow of
counterfeit goods. This work could be extended to encourage other countries to reduce levels
of IP infringement.

R o l e f o r Tr a d i n g S t a n d a r d s
Trading 5.108 Copyright and trade mark owners have full access to civil and criminal provisions to
Standards enforce their rights and distinction should be made between these provisions. Where crimes
are more difficult to detect and involve organised crime, rights holders will require greater
involvement of Trading Standards and the police to enforce rights, and infringements should
be dealt with using criminal penalties.
5.109 Trading Standards ensure that trade is fair and lawful. Unlawful trade of pirated goods
generally involves infringement of either copyright, trade marks or both.
5.110 When the maximum penalty for certain copyright offences was increased in 200273
copyright offences became ‘serious arrestable offences’.74 Trading Standards have powers and
the duty to prevent the sale of trade mark protected goods. However, where the infringement
of rights relates to copyright alone Trading Standards do not have the power to act, and
cannot perform searches and seizures. This means, for example, that where there are sales of
counterfeit CDs and DVDs, Trading Standards have only a limited response. This creates an
inconsistency in the way that the law treats piracy and counterfeiting.
5.111 This inconsistency would be rectified by bringing into force section 107A of the
Copyright, Designs and Patents Act (CDPA) 198875 which would make enforcement of
copyright infringement the responsibility of Trading Standards. It would also give Trading
Standards the power to make test purchases, enter premises and inspect and seize goods and
documents. To offset the cost of enforcement, full use should be made of the powers within
the Proceeds of Crime Act (2002).76
5.112 The OFT is taking on the role of championing Trading Standards and helping to
define meaningful priorities for local authority Trading Standards Services (TSS). IP crime not
only affects legitimate local businesses but can have a detrimental effect on consumers, since
counterfeit products may be of substandard quality and even in some cases lead to safety
concerns. It is therefore recommended that TSS take full acccount of IP crime-related issues
in setting their local priorities. The OFT and the Patent Office are working closely together to
introduce better targeted enforcement through more widespread usage of the National
Intelligence Model (NIM) by local authority Trading Standards Services.
Recommendation 42: Give Trading Standards the power to enforce copyright

infringement by enacting section 107A of the Copyright, Designs and Patents Act 1988.
73
By the Copyright, etc and Trade Marks (Offences and Enforcement) Act 2002.
74
Under the Police and Criminal Evidence Act 1984.
75
This provision was inserted by the Copyright, etc and Trade Marks (Offences and Enforcement) Act 2002 but has never
been brought into force.
76
POCA was set up to reduce crime by confiscating the proceeds of crime with a new power of civil recovery. The Assets
Recovery Agency was granted powers under the act to take the profits from crime through civil recovery, criminal
confiscation or taxation.

Mechanisms to resolve conflict

IP litigation in 5.113 Litigation of patents is extremely expensive in England and Wales with costs of
England and comparable cases in English patent courts up to four times greater than in Germany, as
Wales is shown in Table 5.4 below. Professional fees in England and Wales are generally higher and the
extremely patent proceedings more complex. This leads to lengthier cases and higher costs. This can
expensive make it more difficult for SMEs to enforce (or defend) any infringement claim. Chapter 6 will
consider how the current England and Wales court structure can be improved to reduce costs.
Table 5.4: A comparison of costs in selected European courts

England and Wales Germany France Netherlands
High Court: £1m £37–74,000 first £44–74,000 £15–30,000 (summary
instance (depends on proceedings), £60,000
scale fees) simple action
Source: The Enforcement of Patent Rights, IPAC, 2003.
Note: € converted to £ at exchange rate 1:1.48.
ADR, including 5.114 Alongside reforming the courts in England and Wales, the number of cases reaching
mediation, can litigation should be reduced by alternative methods to resolve disputes.77 Alternative dispute
be used to avoid resolution (ADR) can be defined as: “... any type of procedure or combination of procedures
litigation voluntarily used to resolve issues in controversy. ADRs include, but are not limited to,
conciliation, facilitation, mediation, early neutral evaluation, adjudication, arbitration and
the use of ombudsmen.” It is intended as a low cost alternative to litigation.
5.115 ADRs can help to avoid the negative aspects of conflict such as damage to reputation,
lost customers, and damage to company morale as well as the large cost implications.
5.116 Mediation involves a controlled discussion between two opposing parties. A neutral
person assists the two parties in working towards a negotiated agreement. The opposing
parties are in ultimate control of the decision to settle and the terms of resolution. Mediation
is more flexible than litigation in that a broad range of terms can be agreed outside the
limitations of law. It can help preserve positive relations between parties that could be broken
down by moving to litigation. Mediation is also much cheaper than litigation; costs in the UK
for mediation cases in general are around £3,000. A high proportion of cases referred to
mediation result in settlement.78
5.117 Mediation’s usefulness depends, however, upon the circumstances of the dispute, the
parties’ objectives, the engagement of the parties and the mediator. Both parties have to agree
to, and adhere to, the decision, taking responsibility for the decision instead of passing
responsibility to a judge or arbitrator.
77
The number of cases reaching court at the moment in the UK is already fairly low, mainly due to the high costs causing
parties to settle rather than reaching trial.
78
The Centre for Effective Dispute Resolution state that over 70% cases referred to them are successfully settled.

5.118 The Patent Office has recently started a mediation service. Several Patent Office staff
members have been trained in mediation and the Patent Office also provides a venue and
administrative support. This service has not been widely used by mediating parties. The
World Intellectual Property Organization (WIPO) also has ADR procedures of mediation and
arbitration where the majority of mediation cases are successfully settled.
5.119 Arbitration is not as common as mediation. It involves an appointed arbitrator whose

decision is binding and enforceable. There are no on-going court fees so arbitration is also
much cheaper than litigation. Arbitration is often used as an alternative to court when
confidentiality is important.
5.120 Different ADR procedures are suited to different client objectives as shown in the
table below. Mediation is of particular value where contracts between the two parties already
exist, as it can maintain good working relationships.
Table 5.5: A comparison of the suitability of mediation, arbitration and

court proceedings depending on the client objective
Non-binding Binding
Objective Mediation Arbitration Court
Minimise cost 3 1 0
Rapid decision 3 1 0
Non-public decision 3 1 0
Maintain/improve relationship 3 1 0
Vindication 0 2 3
Obtain neutral opinion 0 3 3
Set precedent 0 2 3
Maximise/minimise recovery 0 2 3
Source: ‘Mediation Principles and Practice’, Kimberlee K. Kovach, 2004.
Key: 0 = fails to meet objective, 3 = fully meets objective
5.121 Mediation and other ADR are currently poorly used and understood for IP. DCA has
been promoting the use of ADR for several years. However, some judges have been reluctant to
encourage parties to mediate. Large companies are often unwilling to mediate in case they are
seen as “weak”. Practice Directions, which relate to the practice and procedure of the court, can
be altered to encourage mediation.
Recommendation 43: Strengthen Practice Directions, to provide greater

encouragement for parties to mediate,79 in particular this should raise the profile of
mediation with judges.
5.122 Under the Human Rights Act 1998, a person has a right to access to the courts. The
Review has therefore rejected imposing further incentives to mediate such as introducing
mandatory mediation.
5.123 IP cases rarely come before magistrates and can raise novel points of law. Owing to
the complexities of IP law, and the increasing sophistication of the defence provided by IP
infringers, judges and magistrates should have a good understanding of all aspects of IP law.
Therefore, greater training specifically dedicated to this area would be beneficial.
79
Rule 1.4.(2)(e) of the Civil Procedure Rules requires the court to use active case management to “encourage[e] the
parties to use an alternative dispute resolution (GL) procedure if the court considers that appropriate and facilitate[e]
the use of such procedure.”

Recommendation 44: The Patent Office should consult with the Judicial Studies Board
to determine the extent to which the complexity of IP law may give rise to a training need
for judges and magistrates and their legal advisers.
Reform of European litigation

5.124 Patents that are granted through the EPO eventually lead to a bundle of national
patents. This can raise the costs associated with litigation and can lead to inconsistency
between national judgments. One solution that has been put forward is the European Patent
Litigation Agreement (EPLA). The EPLA would establish a single European Patent Court with
jurisdiction over patents in all the states contracting to the European Patent Convention.
5.125 It should be noted that the EPO processes in the region of 180,000 patent applications
every year of which around half are granted. However, across the EU there are fewer than
1,500 cases of patent infringement before the courts. Of these, somewhere between 75 and
150 involve more than one jurisdiction.80 One reason for this low number of parallel cases in
the prohibitive costs of litigation in contracting states.
Multiple 5.126 As the chart below shows, the estimated costs of litigation at a potential European
litigation in Patents Court could be considerably cheaper than pursuing a case in the UK at present. This
Europe is provides a strong endorsement for the EPLA and the European Court from the UK
expensive perspective.
Chart 5.7: Estimated (a) minimum and (b) maximum costs at the
court of first instance for patent cases in selected
European states, and in a potential European Court
(a) (b)
160,000 1,600,000
140,000 1,400,000
120,000 1,200,000
Court costs: €uro
Court costs: €uro
100,000 1,000,000
80,000 800,000
60,000 600,000
40,000 400,000
20,000 200,000
0 0
DE FR GB NL EP Court DE FR GB NL EP Court
Source: Assessment of the impact of the European Patent Litigation Agreement (EPLA) on litigation of European patents, EPO, 2006.
5.127 However, as well of being of benefit to litigants in the British courts, once parallel
litigation is taken into consideration, the European Court also becomes cheaper than parallel
litigation in three states.81 As the chart below shows it would be cheaper to litigate at the
European Court than in parallel in Germany, France and the Netherlands.
80
Access at http://www.channelregister.co.uk/2006/09/29/legitimate_doucts.
81
Assessment of the impact of the European Patent Litigation Agreement (EPLA) on litigation of European patents, EPO, 2006.

Chart 5.8: Estimated (a) minimum and (b) maximum costs at the
court of first instance for parallel litigation in selected European
states, and in a potential European Court
(a) (b)
140,000 800,000
120,000 700,000
Court costs: €uro
Court costs: €uro

600,000
100,000
500,000
80,000
400,000
60,000
300,000
40,000
200,000
20,000 100,000
0 0
DE/GB/NL DE/F/NL EP Court DE/GB/NL DE/F/NL EP Court
Source: Assessment of the impact of the European Patent Litigation Agreement (EPLA) on litigation of European patents, EPO (2006).
5.128 Moreover, in addition to reduced costs, a single European Court will considerably
reduce the amount of time taken to litigate as there will only be one judgment rather than
multiple decisions. This will also lead to far greater certainty of outcomes as opposing
decisions would not be reached in different jurisdictions. Provided it is staffed by expert IP
judges, the Court will ensure that high quality decisions are taken.
5.129 Historically, the European Commission has been sceptical of the EPLA, viewing it as
an unwelcome distraction from the ultimate goal of COMPAT. However, this position seems
to be shifting in a welcome direction. Responding to the consultation on the future of patent
policy in Europe, Commissioner McCreevy said: “COMPAT and the EPLA are not mutually
exclusive initiatives. They are both aiming at the same goal: a better, cheaper, more reliable
patent system.”82
Recommendation 45: Support the establishment of a single EU court to adjudicate

cross-border IP disputes by promoting the European Patent Litigation Agreement.
Conclusion
5.130 The recommendations in this chapter are aimed at improving the operations of the IP
system in terms of how IP is awarded, used and enforced. The implementation of these
recommendations alongside those from the Instruments and Governance chapters will
address some key problems in the UK IP system.
IP Rights – next steps, McCreevy C, 2006. See http://europa.eu.int/rapid/pressReleasesAction.do?reference=

82
SPEECH/06/485&format=HTML&aged=0&language=EN&guiLanguage=en.

6 GOVERNANCE
6.1 It is vital that the organisations responsible for administering, enforcing and setting
policy for IP are well run and effectively integrated. Without adequately functioning bodies,
the IP system will not operate in the way users expect. As noted in Chapter 4 there are a
number of international fora and bodies engaged in IP policy making and operation. The
Review focuses on the principal UK body with responsibility for IP: the UK Patent Office.
T H E U K PAT E N T O F F I C E
6.2 The UK Patent Office has a range of responsibilities in relation to IP, as outlined in
Chapter 3. This chapter focuses on three areas:
• policy formulation;
• administration of registered IP rights (patents, designs and trade marks); and
• dispute resolution as a tribunal.
6.3 Chapter 5 addressed the Patent Office’s role leading the IP crime strategy, and its work
providing information to business.
Pa t e n t O f f i c e p o l i c y r o l e
6.4 The Patent Office is responsible for advising Ministers on the vast majority of IP
policy.1 It reports to the Minister of State for Science and Innovation in the Department of
Trade and Industry (DTI). The Review has identified three principal concerns in relation to
policy formulation at the Patent Office:
• policy development has often been reactive and has not taken into account
changes in the economy and relevant developments in related policy areas;
• there is no clear separation between operational and policy functions in the

Patent Office, leading to a potential conflict of interest; and
• it has proven difficult to grow policy skills in the Patent Office.
Policy has been 6.5 Responsibility for policy development in the Patent Office rests with the Intellectual
reactive Property and Innovation Directorate (IPID). IPID has a clear understanding of detailed IP
issues, and can play a strong representational role on specific policy areas. For example,
UKPO ensured that UK business interests were represented in European discussions to
amend the Community Trade Mark Regulations in 2005. It also successfully implemented the
European Directive concerning remuneration for artists when their works are re-sold,
receiving a commendation from the Davidson Review of the Implementation of European
Directives for its work in this area.
1
Plant breeders rights and protection of geographic indicators and related rights fall within the scope of the Department
for the Environment, Food, and Rural Affairs.

6 GOVERNANCE
6.6 However, the Patent Office has been less effective at taking a strategic view of IP
policy. The Patent Office has not always been effective at linking IP and other, related areas,
such as, trade, health and broader innovation policy. For example, it has not undertaken
systematic work examining how the IP framework has helped or hindered the development
of Open Source methods,2 or proteomics, a subset of genetic science.
6.7 The Patent Office has a Steering Board and an Executive Board. The Steering Board’s
role is to advise Ministers on the corporate plan and performance. The Executive Board’s role
is to oversee the day-to-day running of the Patent Office. Both boards focus on the
operational performance of the Office, and neither have detailed oversight of the Patent
Office’s policy function.
Reforms to date 6.8 In order to add strategic focus to policy development the DTI established the
have not been Intellectual Property Advisory Committee (IPAC) in 2001. It was charged with identifying
successful strategic issues for IP policy and relaying stakeholder views to Government. IPAC has drawn
attention to some of the challenges for IP policy, including the lack of awareness of IP among
businesses, particularly SMEs. However, in many areas of policy, IPAC’s investigations have
been protracted and, in a number of instances, it has failed to produce substantive outputs.
IPAC has failed to add substantively to policy development because it has had an
insufficiently clear remit, been inadequately resourced, and its membership drawn from too
narrow a group of stakeholders.
6.9 The Review believes that a strong, independent body could make a real contribution
to IP policy development. An independent board should be given a clear and coherent remit
to provide a strategic overview of policy and to challenge Government policy-making. In
addition, it should advise on how the UK’s interests should be pursued in international IP
negotiations. The chair should be operationally independent from Government and be
appointed by the Chancellor. The board should be drawn from a wide range of stakeholders,
including academics, consumer groups and industry representatives – from creative
industries and ‘industrial’ IP users – who are able to draw links between IP and a number of
related issues. In addition to independent stakeholders, the head of IPID at the Patent Office
and a senior official from the DTI and HM Treasury should sit on the board. The board should
be free to set out the activities it undertakes and the policy areas it investigates. Government
should respond to the advice of the board, but should not be bound by its direction or
decisions.
Adequate 6.10 One of the factors that hindered IPAC from making an impressive contribution to
resourcing policy, was inadequate resource. The independent policy advisory board should be given a
standing secretariat based in London. Staff should be drawn from the OSI in the DTI, and the
chair should have the ability to bring in external experts to assist the secretariat where
necessary.
Recommendation 46: Establish a new Strategic Advisory Board for IP policy (SABIP),
covering the full range of IP rights, reporting to the minister responsible, by 2007. The
Board should be drawn from a wide range of external experts as well as key senior policy
officials from relevant government departments, and should be based in London. £150,000
should be allocated to fund the secretariat by the Patent Office.
2
Open Source software can be freely used and improved upon by programmers, provided that any improvements to the
source code are made available to subsequent users.

GOVERNANCE 6
6.11 In addition to the standing secretariat, the Review believes that the work of SABIP
would be enhanced if it could commission external research. The Japanese Patent Office sets
aside a significant amount of money each year for research into IP-related policy issues. This
is used by their Institute of Intellectual Property and has produced a wide range of policy
reports analysing the changing environment for IP. It is a key part of Japan’s strategic
approach to Intellectual Property. Similarly, US proposals to solve the problem of orphan
works were developed using research funded by the Library of Congress. Funds set aside in
the UK could be used to commission independent and forward looking research to
supplement the standing secretariat.
Recommendation 47: The Patent Office should provide an annual IP strategic analysis
fund of £500,000 managed by the policy advisory board in consultation with the IP Policy
Directorate.
Strengthening 6.12 In addition to providing a strong independent board to improve strategic policy
Patent Office making, the Review believes that the Patent Office’s internal policy making function should be
policy making strengthened to provide a stronger strategic focus and link more effectively with wider themes
and other Government objectives.
6.13 The Patent Office’s policy function is not clearly distinct from its operational work.
While IPID is nominally the lead on policy development, the CEO, the Patents Directorate, the
Trade Marks and Designs Directorate and the Finance Directorate all undertake additional
policy analysis and provide advice. This creates a potential conflict of interest. The optimal
policy for the Patent Office, functioning as a Trading Fund, may not be the optimal policy for
Government, particularly in international negotiations. For instance, national offices may not
want international rights to be cheaper to register than national rights, as this would reduce
demand for their services. In order to remove the potential for conflicts of interest, a clear
distinction between policy and operational functions is necessary. The policy directorate
should take the lead on issues of policy, including at the European Patent Office (EPO), Office
of Harmonisation for the Internal Market (OHIM) and World Intellectual Property
Organization (WIPO), with support from operational colleagues as necessary. It is important
that policy officials report through a different management structure to their operational
colleagues, and that IP policy takes full account of wider Government objectives.
Recommendation 48: Patent Office should introduce a clear split of responsibility

between delivery and policy directorates.
6.14 The Patent Office is located in Newport in South Wales. Since moving to Wales the
Patent Office has reduced running costs by more than ten per cent. Staff turnover has also
reduced. However, this physical separation of Patent Office staff from central Government
departments has contributed to the lack of connectivity with wider Government agendas and
has made it more difficult to grow policy skills in the Patent Office. The Review recognises the
benefits of having certain Government functions located outside London and the South East,
but believes that policy making would be strengthened if staff added to their experience in the
Patent Office by working in central Government departments.
6.15 Patent Office staff sometimes lack an understanding of how businesses use IP and
the problems they face negotiating the existing system. A greater understanding of how IP
policy impacts on all stakeholders across industry, NGOs and consumers would ensure that
Ministers were more fully appraised of the potential impacts of a policy under
consideration.

6 GOVERNANCE
Recommendation 49: Encourage IP policy officials to obtain policy experience outside

the IP Policy Branch, and support short industry placement schemes for policy staff.
Pa t e n t O f f i c e a d m i n i s t r a t i v e r o l e – g r a n t i n g I P r i g h t s
UK patents are 6.16 Many submissions to the call for evidence were positive about the service provided by
cheap to acquire the Patent Office to applicants. Patent Office customer surveys also suggest stakeholder
satisfaction. Patent grant fees in the UK are low. As Chart 6.1 below shows, the UK is one of
the cheapest countries to have a patent in force for twenty years.
Chart 6.1: Cost difference to the UK for a 20-year patent,

2006
£25,000
£20,000
£15,000
£10,000
£5,000
£0
-£5,000
ia
Sw lia
n
Au ce
da
a
a
en
y
O
k
Fin A
De nd
Ca d
Fr l
itz nd
in
re
di
pa
an
i
ar
ss
US
EP
az
lan
an
ra
na
ed
Ch
In
la
Ko
Sw rela
Ja
nm
Ru
rm
Br
st
er
h
Ge
I
ut
So

EPO estimate based on renewal in six countries, after fifth year.
6.17 The Review recognises that office fees are only a small part of the overall pre-grant
fees borne by applicants, and has made recommendations in Chapter 5 to reduce legal costs,
which make up the bulk of the costs.
6.18 The Patent Office is an executive agency of the DTI, and operates as a Trading Fund
under the Patent Office Trading Fund Order. This means that it must use its own revenue
sources to cover operating costs and provide a return on capital to the Government. A
separate order sets out the activities that can be taken into account when setting statutory
fees to allow cross-subsidy between different functions.
UK patents do 6.19 The Patent Office trade mark and design operations generally break even and provide
not cover their a return on capital employed. However, at present, patent operations do not. The Patent Office
costs charges small initial fees at the patent grant stage. It recoups costs principally via renewal fees.
UK renewal fees are payable each year from the first year after being granted. Currently the
break-even point on domestically granted patents at the UK Patent Office is fourteen years.
A UK patent that expires before this period effectively has its registration and administration
costs subsidised by the Patent Office. The current average life for a UK patent is between ten
and eleven years. Consequently, domestic patents operations do not cover their costs.

GOVERNANCE 6
6.20 Domestic patents are currently subsidised by European patents designating in the
UK. The Patent Office currently retains half of the renewal fees from European patents
designating the UK. However, the EPO Administrative Council could change this division at
any time and as such, this stream of revenue is unpredictable.
Recommendation 50: Realign UK Patent Office administrative fees to cover costs more
closely on Patent Office administrative operations (e.g. granting patents).
6.21 Patent Office income is used to fund policy, awareness, and enforcement, and the
Patent Office’s tribunal functions. It is important that the use and allocation of such resources
for both its statutory and non-statutory work is clear and transparent.
Recommendation 51: Increase the transparency of Patent Office financial reporting.
6.22 The position of the Patent Office as both a granting authority for IP rights and as a
tribunal where those rights may be challenged creates a potential conflict of interest. Officials
in the tribunal may be reluctant to over-rule the decisions made by their colleagues in
granting rights.
Recommendation 52: Ensure that under current arrangements in the Patent Office,
there is a clear internal separation of responsibility between the granting of rights and
disputes over their ownership or validity. This should be achieved by clearly separating the
line management structures.
N a m e o f t h e Pa t e n t O f f i c e
6.23 The name of the Patent Office can be misleading to stakeholders. It suggests that the
office is only concerned with patents while, in fact, it performs a broad range of functions in
relation to all IP. The present name also contributes to the perception that other forms of IP,
for example copyright, take a lower priority.
6.24 Some stakeholders have suggested that a separate Copyright Office be established.
However, the Review believes that there are a greater number of synergies than differences
across different forms of IP. Policy, education, enforcement, business support, and awareness
raising cut across the boundaries of all IP rights. The Review has therefore decided not to
recommend that a separate Copyright Office be established.
6.25 Instead, the Patent Office should ensure that all stakeholders are given, and are seen
to be given, equal consideration in IP policy. The Review therefore recommends that the
name of the Patent Office should change to reflect better the functions it carries out.
Recommendation 53: Change the name of the UK Patent Office to the UK Intellectual
Property Office (UK–IPO) to reflect the breadth of functions the office has, and to dispel
confusion.
C O S T A N D C O M P L E X I T Y O F L I T I G AT I O N
6.26 As outlined in Chapter 2, the current UK IP litigation structure is complex, with
litigants having a choice of tribunals through which to commence their action. While having
a number of judicial fora enables litigants to choose the most cost effective or appropriate
tribunal or court, it can add to complexity. The diagram below summarises the current court
and tribunal structure together with appeal routes.

6 GOVERNANCE
Chart 6.2: Current IP litigation system

House of
Appeal Lords
route
References to
European Court of Justice
Court of European Court
appeal of Justice
High Court
Appointed (Chancery Division)
Cases sent Patents County
person Designs,
Copyright, Court
Patent Court
Trade Marks Only Patents Not copyright
TM
TM Route 2 Patents
Route 1
Designs Registered
Copyright Patent Office
design appeals
Tribunal (Tribunal and granting)
tribunal
Source:Treasury analysis.
6.27 As discussed in Chapter 5 IP litigation is expensive in the UK relative to other

countries. Claims in English and Welsh courts can be up to four times more expensive than in
Germany, yet there are few differences compared to Europe in the remedies available or the
quality of legal decisions. There are a number of reasons why lawsuits in England and Wales
are costlier than throughout Europe. Professional fees in England and Wales are generally
higher and the patent litigation process is more complex, involving disclosure, cross-
examination and the use of expert witnesses. Other jurisdictions in Europe make less use of
these processes and also have systems of capped or scale costs. This reduces risk and gives
both parties an indication of their liability should they lose.
6.28 High costs of litigation fall particularly heavily on SMEs defending their rights. SMEs
are often dissuaded from bringing cases against larger firms, as they know that larger firms
can stretch out suits and thereby increase the cost. For SMEs, protecting their market position
is initially more important than recovery of damages: infringement needs to be stopped
quickly. The current UK appeals route is slow and so does not meet their needs.

GOVERNANCE 6
R e f o r m o f Pa t e n t s C o u n t y C o u r t
6.29 The Patents County Court (PCC) was established to provide a cheaper and more
streamlined procedure than the High Court for litigating patents and designs and recently
this has been extended to trade marks, Community Trade Marks and Community Designs.
The Patents County Court is run by the courts service. In most respects, the High Court and
PCC have the same jurisdiction.
Chart 6.3: Development of the Patents County Court

1988 Copyright
Designs and
1986 White Paper Patent Act September 1990
All patent disputes dealt White paper Patents County

with by Patent Office or suggestion accepted Court established
patents court and enacted
Source: The Work of the Patents County Court, Michael Fysh, 2003.
6.30 Following the Woolf reforms to the civil law system in 1999, all courts in England and
Wales now work to the same rules of procedure. The reforms led to three “tracks” of
legislation: small claims; fast; and multi-track. Cases are allocated largely according to the
amount in dispute. Anything over £15,000, which includes nearly all IP cases, is heard as a
multi-track case. Accordingly, many of the benefits of the fast track system, such as capped
costs, limited trial length and limited disclosure, do not apply to IP cases. This means the PCC
is now almost as expensive and complex as High Court litigation. High costs at the PCC and
the High Court act as a barrier to all potential litigants, and to SMEs in particular.
6.31 Changes to the relevant Civil Procedure Rules (CPR) could enable IP cases to be
allocated to their own “fast track” procedure. This would entail raising the current £15,000
limit on the amount in dispute that can be heard in fast tracked cases. In addition, legal fees
for fast track IP procedures should be capped to reduce costs.
Recommendation 54: DCA should review the issues raised in relation to IP cases and
the fast track and seek views in the context of its forthcoming consultation paper, which
will consider the case track limits, and how the claims process can be made more timely,
proportionate and cost-effective. It should bring forward any proposals for change by the
end of 2007.
C O N C LU S I O N
6.32 This chapter has made a number of recommendations to improve the Patent Office’s
work in respect of policy making and administration of rights and its tribunal function. These
reforms will reduce the costs of litigation and make sure the Patent Office has a secure
financial footing. Furthermore, they will ensure that future challenges to the IP system are
adequately addressed by policy and that the UK is able to place itself at the forefront of the
knowledge economy.

7 CONCLUSION
7.1 Creativity, innovation and investment are crucial to boosting the productivity of the
UK economy. Looking forward, their importance is set to remain centre-stage as we enter the
‘third industrial revolution’. The UK must be able to harness creativity and promote
innovation in order to compete in the global, knowledge-based economy. Intellectual
Property creates the link in the chain which incentivises individuals and firms to innovate and
create, with the confidence that their investment is protected.
Improving the 7.2 The Review has shown that while in many regards the UK IP system works well, there
current system are a number of areas where it could perform even better. The Review has made a number of
recommendations to improve the framework for innovation; in particular it has called for:
• stronger enforcement of IP rights to ensure practical protection is provided for

rights owners and effective deterrents to infringement are in place;
• lower operational costs for business, simplifying processes such as licensing

and litigation, and improving education and advice; and
• greater balance and flexibility of IP rights to allow individuals, businesses and

institutions to use information and ideas in ways consistent with the digital
age.
7.4 The Review has set a vision for IP policy motivated by a clear purpose. The IP system
must enable greater economic productivity whilst ensuring equity for all those who use IP. In
order to achieve this, the instruments of the system must be balanced, coherent and flexible,
and the operation of those instruments must be effectively administered. Changes will be
required within the UK and abroad. In order to drive a programme of greater international
coherence, especially at the European level, the UK should take a lead on IP policy
development. A more efficient international IP system is not only to the benefit of the UK, but
to the whole of Europe and beyond.
Meeting the 7.5 If the Government accepts and implements the Review’s recommendations, the
challenges Review believes that the portfolio of measures will ensure that the UK IP system is fit for
purpose in the digital, global age.

A G LO S S A R Y
ACID: Anti Copying in Design
Additional damages: Damages provided for by the CDPA for infringements of copyright,
design rights or performer’s property rights
ADR: Alternative Dispute Resolution
Arbitration: A form of ADR where an impartial referee hears and determines a dispute
Berne Convention: Berne Convention for the Protection of Literary and Artistic Works that
provides certain minimum standards in relation to literary, dramatic, artistic and music
works
Biotechnology: The use of living organisms and tissues in the development and manufacture
of products
BMR: British Music Rights
BPI: British Phonographic Industry, the British record industry’s trade association
Business Link: UK national business advice service
Call for Evidence: The Gowers Review consultation, from February to April 2006
CBI: The Confederation of British Industry, a trade association representing the interests of
UK business
CFI: Court of First Instance
CIPA: Chartered Institute of Patent Agents
Civil Procedure Rules (CPR): A set of rules which govern the way in which civil court cases are
conducted in England and Wales
Claims: The part of a patent that states the uses and possible applications of the invention
described in the patent
Combined Patent Search and Examination (CSE): UK Patent Office initiative to combine
patent search and examination and thus reduce time to grant a patent
Community acquis: The body of common rights and obligations which are acknowledged by
all the Member States of the European Community
Community Patent: A patent law measure being debated within the EC which would allow an
applicant to obtain a unitary patent which would have effect throughout the Community
Community Patent Review: A peer review system for patents currently being developed at
the USPTO
Community Registered Design: A design right that gives protection throughout the
Community, administered by OHIM
Community Trade Mark (CTM): A trade mark that has unitary effect and gives protection
throughout the Community, administered by OHIM

A G LO S S A R Y
Companies House: An executive agency of DTI which registers and provides information on
all UK companies under the Companies Acts
Competition Commission: An independent public body which conducts enquiries into

mergers, markets and the regulation of the major regulated industries
Copycat packaging: Competitors using packaging designs for their products that mimic
closely the packaging of familiar brands
Copyright: A set of exclusive rights granted by the CDPA, which last for a limited time to
protect the particular form, way or manner in which an idea or information is expressed.
Copyright arises automatically in the UK
Copyright, Designs and Patents Act (CDPA) 1988: An Act which governs UK copyright laws,
created an unregistered design right and contained modifications to the law on patents and
registered designs
Copyright Tribunal: An independent body set up under the CDPA to settle various types of
copyright disputes, mainly in relation to copyright licensing. The UK Patent Office provides a
secretariat to the Tribunal
Copyright (Visually Impaired Persons) Act 2002: An act which amended the CDPA 1988 and
introduced exceptions to copyright law that remove the need to obtain permission from the
rights holder of a copyright protected work in order to produce an “accessible copy” for those
with visual impairment
Counterfeit: An imitation of a good made to represent the original, which is not authorised by
the rights owner
Creative Commons: A non-profit organisation which offers a set of copyright licences to

promote freedom of use and reuse of creative works
DCA: Department for Constitutional Affairs
DCMS: Department for Culture, Media and Sport
DfES: Department for Education and Skills
DRM: Digital Rights Management, technology used by content owners to control the use of
their work
DTI: Department of Trade and Industry
EC: European Community
ECJ: European Court of Justice
Educational Exceptions: Certain exceptions to copyright which allow works to be used for a
range of non-commercial educational purposes
EPC: European Patent Convention, a treaty which created the European Patent Organisation
and sets the rules of the European patent
EPLA: European Patent Litigation Agreement, a proposed single European patent judicial
system
EPO: European Patent Office, the executive body of the European Patent Organisation

G LO S S A R Y A
EPOrg: European Patent Organisation, an international organisation set up by the EPC which
provides a centralised patent grant system administered by the EPO
Esp@cenet: A patent search service developed by the EPO
EU: European Union
Executive Agency: An organisation which carries out some executive functions of UK

government. Do not generally set policy but have flexibility in managing the implementation
of policy
Fair dealing: A series of copyright exceptions which permit a work to be used for limited
purposes, provided the use is “fair”
Fair use: Exceptions to US copyright law which allow limited use of copyright material
without requiring permission from the rights holders
FDI: Foreign Direct Investment, investment in one country by firms owned in another
country
Free riding: When one person benefits from the actions and efforts of another without paying
for or sharing the costs
GDP: Gross Domestic Product, the total value of goods and services produced by a nation
Get-up: Visual appearance of a product that may require protection as part of the total image
or overall impression created by the product or its packaging in the marketplace
GNP: Gross National Product, the value of a country’s final output of goods and services in a
year
Gross Value Added: The difference between output and intermediate consumption for a given
sector or industry
High Court: In England and Wales, the High Court hears the most important civil cases and
appeals from the County Courts
IFPI: International Federation of the Phonographic Industry
Industrial application: In order to receive patent protection, an invention must be capable of

being made or used in some kind of industry
Information Society Directive (“InfoSoc”): Directive 2001/29/EC on the harmonisation of

certain aspects of copyright and related rights in the information society
Intangible assets: Items of value owned by a firm or individual without a physical existence,
such as goodwill and the value of patents
Inventive Step: The concept that an invention is not an obvious development on what has
been done or published before the priority date
IPAC: Intellectual Property Advisory Committee, a body formed to give independent advice to
Government on IP issues
IPID: Intellectual Property and Innovation Directorate, the Directorate at the UK Patent
Office which deals with IP policy
ISP: Internet service provider
ITMA: Institute of Trade Mark Agents

A G LO S S A R Y
JPO: Japanese Patent Office
Licence of Right: The endorsement of a patent as licence of right enables the owner to pay
half renewal fees. In return anyone may have a licence upon reasonable terms
Licensing (in-licensing/out-licensing): Contractual agreement granting permission to use IP

under specific conditions. “In-licensing” refers to licensing of another’s IP, “out-licensing”
refers to licensing of one’s own IP to others
London Agreement: An international agreement under the EPC aimed at reducing European
patent costs by reducing the post-grant translation requirements
Madrid Protocol: Provides for the protection of trade marks in a number of countries by
means of a single application
MCPS: Mechanical Copyright Protection Society, a UK collecting society
Mediation: The negotiation between two parties to resolve differences, aided by a neutral
third party
National IP Crime Strategy: A strategy set up to tackle IP crime by bringing together different
parts of government, industry stakeholders, policymakers and enforcers, to create a
coordinated approach to intellectual property enforcement. Currently led by the Patent
Office
NGO: Non-governmental organisation
Novelty: The concept that the claims defining an invention in a patent application must be
new for an invention to be patentable
Observations (“Section 21”): In the UK, the ability to comment on whether the Patent Office
should grant a patent for a particular invention after it has been published
OFT: Office of Fair Trading
OHIM: Office for Harmonisation in the Internal Market, the receiving and examining Office
for applications for Community Trade Marks and Design rights
ONS: Office for National Statistics
Open Source: A program whose source code is distributed, often with copyright licensing
terms allowing others to use that source code
Orphan work: A copyright work where the rights holder cannot be found
P2P: Peer to peer, the sharing and delivery of files among groups of people logged on to a file
sharing network
Paris Convention: The first treaty on industrial property rights which was originally agreed in
1883. It provides for national treatment, priority and some minimum standards
Passing off: A common law claim which can be used to protect the reputation of a trade mark,
brand or get up of a product
Patent opposition: A request to a patent office by an opposing party that an application

should be refused, or that a granted patent should be annulled; there is no patent opposition
under UK law

G LO S S A R Y A
Patent Pools: A cooperative agreement between several patent owners to cross-licence
patents relating to a particular technology
Patentability: The ability of an invention to satisfy the legal requirements for obtaining a
patent, including novelty, involving an inventive step (non-obviousness), having industrial
application and not be “excluded” (e.g. computer software may not be patentable in many
countries)
Patents County Court: A court founded to cater for the needs principally of medium and
small size firms in litigating patents and designs, recently extended to trade marks
PCT: Patents Cooperation Treaty, the treaty that facilitates filing of applications between
member countries by providing a single international application procedure
Performers Rights: Rights, additional to the rights of copyright owners, initially belonging to
the performer with respect to the performance and subsequent exploitation of the
performance
Piracy: Unauthorised duplication of goods protected by IP law
PPL: Phonographic Performance Limited, a UK collecting society
Preliminary examination: The initial study of an application by a patent office to check that
it meets formal requirements, in particular that it is properly formatted
Prior art: Previously used or published technology, that may be referred to in an application
Priority date: The initial date of filing of a patent application, normally in the applicant’s
domestic patent office. This date is used to help determine the novelty of an invention
Proceeds of Crime Act (POCA): A law which enables property obtained by unlawful conduct
to be recovered by enforcement agencies
PRS: Performing Rights Society, a UK collecting society
Punitive Damages: Also known as exemplary damages, are damages used to punish a
defendant for his or her wrongdoing, they are generally unavailable under English law
R&D: Research and Development
RDA: Regional Development Agency, non-departmental public bodies for the development of
each of the UK’s regions
Registered Design: A monopoly right granted in respect of the appearance of the whole or
part of a product
Relative Grounds (for refusal): The decision to reject a trade mark application as it is identical
to or similar to earlier marks
Renewal fees: Payments that must be made by the applicant to keep a registered right in force
and prevent it from lapsing
Retrospective/Retroactive term extension: Extension of copyright term for works that are
already in copyright (retrospective) and for works that have fallen out of copyright, but which
would still be in copyright if the longer term existed when they were created (retroactive
revival of copyright)
Reverse Engineering: The process of understanding how a product is made from disassembly
of the product

A G LO S S A R Y
Search report: The list of citations of published prior art documents prepared by the Patent
Office examiner in checking the novelty of a patent application
SEEDA: South East England Development Agency
SIPO: (State Intellectual Property Office), China’s IP Office
SME: Small and Medium-sized Enterprise
SOCA: Serious Organised Crime Agency
Specification: The description, drawings and claims of an invention prepared to support a

patent application
Substantive examination: The examination by the patent office examiner of a patent

application to determine whether a patent meets the patentability criteria
Sui generis: (“of its own kind”) A right specifically designed to address the needs and concerns
of a particular issue
Supplementary Protection Certificate (SPC): Additional protection equivalent to an

extension of patent term which gives certain products (in particular pharmaceutical
products) longer protection due to the additional regulatory requirements
TellPat: The National Intellectual Property Intelligence System
Term: The number of years that a particular IP right lasts
TPM: Technical protection measure, designed to prevent unauthorised use of copyright

protected content
Trade mark: A distinctive sign or identifier that can distinguish the goods and services of one
trader from those of another
Trade Mark Opposition: After a trade mark has been published, the period of three months
during which time anyone can raise an objection to the Patent Office decision to accept the
mark
Trading Fund: Parts of Government which operate in specialised fields and rely on their
ability to derive income in order to cover their costs. Each is established by their own Trading
Fund Order
Transformative works: Works that use other works protected by copyright for a purpose such
as to comment upon, criticize or parody the copyrighted work
TRIPS: Trade Related Aspects of Intellectual Property Rights Agreement, a treaty administered
by WTO which sets down minimum standards for IP regulation
UK Trade and Investment (UKTI): Government organisation that supports companies in the
UK doing business internationally and overseas enterprises seeking to do business in the UK
UKPO: United Kingdom Patent Office
Unregistered design right: A right which comes automatically into being to protect an
original design
USPTO: United States Patent and Trademark Office
Utility model: A kind of patent available in some countries (but not the UK) which involves a
simpler inventive step than that in a patent. Also known as a petty patent

G LO S S A R Y A
VPL: Video Performance Limited, a UK collecting society.
WIPO: World Intellectual Property Organization
Woolf Reforms: Changes to civil law procedures in England and Wales which aim to simplify
and speed up the process of taking cases through the courts
WTO: World Trade Organization

B CALL FOR EVIDENCE
B.1 The formal Call for Evidence was published on 23rd February 2006. It set out the
scope of the Review and asked respondents to comment on a range of general and specific IP
issues, and to highlight other issues they considered important. The questions posed in the
Call for Evidence are set out below. The Call for Evidence closed on 21st April 2006.
B.2 The Call for Evidence elicited 517 responses and a petition on extending copyright
term for sound recordings. Responses not designated as confidential can be viewed on the
Gowers Review website. The full list of respondents is below.
R E S P O N S E S : I N D I V I D UA L
Alan Bunting B F Woodgate Dave Glass
Alan Cox B J Moore Dave Jessop
Alasdair Poore Barry McCanna Dave McAleer
Albert Pattison Bernard Smith David Ades
Alexander Mckenna Bharath Manu Akkara Veetil David and Nansi Mottram
Alistair Kerr Bill Myatt David Colp
Alister Mitchell Brian Hawkins David Cummings
Andrew John Brian Matthews Professor David Kirkby
Andrew John Hughes Charles Harrison Lord David Puttnam
Andrew Shuttlewood Chris Bartram David Robinson
Andy Green Chris Brand David Symes
Andy Turner Chris Newton Derek Holt
Lord Chris Smith Derek Metheringham

Anne Duffill
Christopher Lee Don Cox
Anthony Austin
Christopher Wood Donald Petter
Anthony Barnett
Colin Charman Duncan Curley
Anthony Bradley
Cristian Miceli Edward Barrow
Anthony H Ratcliffe
D B Fletcher Eric Smith
Anthony Skyrme/Michael
Schofield D C Kendal Fiona Frank
Antony Howard D M Soall Frank Bristow
Antony Watts Dan Re’em Frank Cullen
Ashley Karyl Daniel Moylan Frank French
Austin Powell Dave Bishop Fred McCormick

B CALL FOR EVIDENCE
Gary Holloway K F Harris/ A J Reid/ Neil Manthorpe

S J Goddard/G Goddard
Geoff Dann Neil Rennoldson
Ken Caswell
Geoff Wallis Neil Thomas
Ken Sephton
Geoff Wilding Nicholas Bentley
Ken Strachan
Geoff Woolfe Norman Jones
Kenneth I Brown
Glenn Mitchell Ossie Dales
Lee Raymond
Glenn Thorpe P Rees
Leonard Nicholson
Howard Hope Pali Rao
Les Hurdle
Ian Bruntlett Paul Collenette
Leslie Davidson
Ian Forbes Paul Hampton
Louis Barfe
Ian Gillis Paul Holroyd
Louise Pryor
Dr J Pelan Paul L D Rank
Lyn Shailer
J R Wrigley Paul Massot
M Highton
James Cort Paul Morris
M Ivan
James Hogg Paul Pedley
James Nice Malcolm Austen Paul Roberts
Jamie Robert Thompson Margaret Smith Peter Adamson
Jim Marshall Mark Berresford Peter Charlton
John Adrian Mark Spry Peter Cripps
John Booth Maurice McCarthy Peter Luck
John Capes Melvin Metcalfe Peter Sandercock
John Earl Michael Asser Peter Wallace
John Goslin Michael Martin Foreman Phil Brooke
John Hope Michael Pointon R Dixon Smith
John Howkins Michael Smith Ray Spendley
John Walsh Dr Michael Steele Rexton Bunnett
Jonathan Sanders Michael van Boolen Richard Allen
Jonnie Dance Michelle Mathurin Richard Baker
Jui Hsuan Tang Mike Child Richard Porter
Julian Dyer Mike Ellis Richard Powell
Julian Myerscough Mike Feist Richard Watts
Julian Vein Neil Jeffares Rob Twisse

CALL FOR EVIDENCE B
Robert Watson Simon Moss Tom Duffy
Robert Young Simon O’Neill Tom Ellis Huckstep
Robin Broadbank Sonia Wood Tony Dean
Robin Cherry Soon Ong Tony Langford
Robin Mukerji Stanley Smith Trevor Taylor
Ronald Prentice Stephen Marshall Wallace J McLean
Ross Anderson Steven Anderman William J Clark
Roy Waters Susan Bell William Kingston
Russell Barnes Swithun Crowe William Scott
Sally Ramage Sylvia Panrucker Willie Liam
Sarah Smith Ted Kendall
Sheldon Greeberg Theo Morgan
Simon Booth Tim Brooks
Simon Levene Tim Gander
R E S P O N S E S : O R G A N I S AT I O N S
Accent Software Ltd Association for University Atmosphere Picture Library
Research and Industry Links
Active Rights Management Authors’ Licensing and
and Netresult Association of Art Historians Collecting Society Ltd
AHDS Visual Arts Association of Independent BAe Systems

Music
AHRC Research Centre for
BBC / BBC Worldwide Ltd
Studies in IP and Technology Association of Learned and
Law, University of Professional Society Biodiversity Organisation
Edinburgh Publishers
BioIndustry Association
All Party Parliamentary Jazz Association of
Appreciation Group Photographers Biomedical Industry
Advisory Group
All3Media Association of Scottish
Colleges
Alliance Against IP Theft Bournemouth University
Association of Streaming
Antenna Audio Ltd Brightman Art Library
Media Companies
Anti Copying in Design British Academy
Association of the British
ARM Ltd Pharmaceutical Industry
British and Irish Association
(ABPI)
of Law Librarians
Arts Council England
Association of United
Ascot Racecourse Ltd Recording Artists British Association of Picture
Libraries and Agencies
Ashurst AstraZeneca (BAPLA)

B CALL FOR EVIDENCE
British Brands Group and Chartered Institute of Designs IQ

Anti-Counterfeiting Group Journalists (CIJ)
Dial Solutions
British Chambers of Chartered Institute of Patent
Digital Content Forum
Commerce Attorneys (CIPA)
Digital Curation Centre,
British Copyright Council Chartered Institute of Public
University of Edinburgh
Relations (CIPR)
British Design Innovation
Disability Rights
City of London Law Society
British Equity Collecting Commission
Society (BECS) City of London Phonograph
D J Association
and Gramaphone Society
British Film Institute
D J Licensing Working Party
Clifford Chance
British Geological Survey
Dr P R Lewis and Associates
Comite Interprofessionnel Ltd
British Library
Du Vin De Champagne
British Music Rights (CIVC) Dramatico Entertainment
Ltd
British Phonographic Competition Commission
Dress Circle
Industry (BPI)
Computer &
Communications Industry Dutton Vocalion
British Screen Advisory
Council Association (CCIA)
East London Inventors Club
British Society of Plant Computer Patent Annuities

Educational Recording
Breeders (CPA) Management Systems
Agency (ERA)
Ltd
British Telecom Electronic Frontier
ConcurrentComputing.co.uk Foundation (EFF)
British Universities Film and
Video Council (BUFVC) Confederation of British Electronics Leadership
Industry (CBI) Council/UK Electronics
British Video Association
Alliance
(BVA) Consumer Project on
Technology Element Design
BSkyB
ContraVision Elysium Ltd
Business Software Alliance
(BSA) Copyright Licensing Agency EMI
Ltd
CALL (Communication Aids Enfis Ltd
for Language and Learning) Creative Commons
Entertainment and Leisure
Centre, University of
Creators Rights Alliance Software Publishers
Edinburgh
Association (ELSPA)
Crop Protection Association
Cambridge Assessment
Envisage Ltd
Cuillin FM
Centre for the History and
Equity
Analysis of Recorded Music, Dart Sensors Ltd
Royal Holloway, University Esterco Biofuel Ltd
of London (CHARM) Data Publishers Association
Ethical Medicines Industry
Channel Four Television Davenport Lyons Group (EMIG)
Corporation
Design and Artists Copyright European Federation of
Channel 5 Broadcasting Ltd Society (DACS) Journalists

CALL FOR EVIDENCE B
European Publishers Institute of Patentees and Joint Information Systems
Council Inventors Committee (JISC)
Evergreen Melodies Institute of Professional JSP Records

Sport
Federation Against Software Just Media Resources
Theft (FAST) Institute of Trade Mark
Attorneys Lancaster University
Federation of Small
Businesses (FSB) Law Society
Institute of Videography
FeONIC PLC Law Society of Scotland
Institution of Engineering
Field Fisher Waterhouse and Technology Libraries and Archives
Copyright Alliance (LACA)
Film Distributors’ Intel Corporation, Europe,
[including Museum
Association Ltd Middle East & Africa
Copyright Group (MCG)]
Flare Records Intellect
Licensing Executives Society
Fo’c’sle Folk Club Intellectual Property
Southampton Lowlights Publishing
Institute
Foldback Media Ltd MacRoberts

Intellectual Property
Lawyers’ Association McDonald Bridge
Foundation for a Free
Information Infrastructure
International Association for Mechanical Copyright
(FFII) UK
the Study of Popular Music Protection Society and
Foundation for Information (IASPM) Performing Rights Society
Policy Research (FIPR) Alliance
International Association of
Freddysays.com Music Libraries, Archives Mellotone Records
and Documentation Centres
Freeth Cartwright (IAML) Microsoft
Glasgow Caledonian Milbank Tweed Hadley and

International Chamber of
University McCloy
Commerce (ICC)
GlaxoSmithKline (GSK) Motion Picture Association
International Concertina
Global Village Ltd Association
MP4
Google International Federation of
Muirhead Management
the Phonographic Industry
Handy women (IFPI) Museum Documentation
Hospital Broadcast Association
International Military Music
Association
Society (UK Branch) Museums, Libraries and
Ian Anderson Group of Archives Council
International Policy Network
Companies Ltd
(IPN) Music Business Forum
Iansyst Ltd
IP Wales Music Hall Magazine
ICI
ITV Music Managers Forum
Incorporated Society of
Musicians Jazz Services Music Traditions Records
Institute of Child Health Johnson Matthey PLC Music Users’ Council (UK)

B CALL FOR EVIDENCE
Music Video Producers Opendawn Ltd Racehorse Holdings Trust

Association Ltd
Ordnance Survey
Musical Stages Magazine Random House Group Ltd
Organisations representing
Musicians’ Union Specific Learning Difficulties Rangers Football Club
National Academies Own It Redeye The Photography

Network
National Archives Oxford Intellectual Property
Research Institute Reed Elsevier Group plc
National Association for
Music in Higher Education PACT Research Councils UK
(NAMHE)
Past Perfect Research Information
National Consumer Council Network
(NCC) Patent and Trade Mark
Reuters
Group (PATMG)
National Council on
Right to Read Alliance
Archives Peninsula Medical School
Rivers Consultancy
National Library for the Periodical Publishers
Blind Association Roehampton University
National Library of Scotland Personal Managers’ Rollercoaster Records

Association (PMA)
National Library of Wales Royal Bank of Scotland
Philips Intellectual Property Group plc
National Museum Directors and Standards
Conference and Museums Royal National Institute of
Copyright Group Phonographic Performance the Blind (RNIB)
Ltd and Video Performance
National Union of Ltd Royal Society
Journalists
Royal Society of Arts
Pierian Records
Naxos UK
S4C
Pink Floyd
National Endowment for
Sage
Science Technology and the Poppy Records
Arts (NESTA) Scientific Generics Ltd
Professional Contractors’
Newspaper Licensing Group Scottish Funding Council
Agency Ltd
Proper Music Group Scottish Intellectual Assets
Newspaper Society Centre
Public Patent Foundation
NHS Innovations East Scottish Screen
Midlands Publishers Association
Sepia Records
NHS Innovations South East Publishers Licencing Society
Share the Vision
Northern Lights PR QinetiQ Ltd
Sheffield Hallam University
ntl Queen Mary IP Research
Institute, University of Sheridans Solicitors
Open Plan Solutions Ltd London
Skyscan Photolibrary
Open Rights Group Queen’s University of Belfast
Society for Computers and
Open University Racecourse Association Ltd Law

CALL FOR EVIDENCE B
Society of College, National The Monster Factory University of Loughborough
and University Libraries
(SCONUL) This England and Evergreen University of Manchester
Magazines
Society of Information University of Newcastle
Technology Management Tiny Quest
Open Source Software University of Oxford
Tony Smith Personal
Group (SOCITM) Management University of Southampton
Society of London Theatre Centre for Enterprise and
Trade Marks, Patents &
and Theatrical Management Innovation
Designs Federation
Association (SOLTTMA)
(TMPDF)
University of Surrey
Sports Rights Owners
Trading Standards, North
Coalition (SROC) University of Sydney
West (TSNW) IP Group
Stanford Law School University of Wales,
UCB S.A.
Aberystwyth
Stock Artists Alliance
UK Association of Online
Stockholm Network Publishers University of Wales, Swansea
Sun Microsystems Inc UK Film Council University of Warwick
Swedish Society of Popular UK Hydrographic Office Video Networks Ltd

Music Composers (SKAP)
UK Professional Football
Villeroy & Boch
Technical Advisory Service Leagues
for Images, Institute for Warner Brothers
UNICO: The University
Learning and Research Entertainment UK
Companies Association
Technology, University of
Bristol Unilever plc Wedlake Bell
Tertullian Project Universities UK Welsh Assembly

Government
Tesco plc Universities UK & Standing
Conference of Principals wePod
The Blacksmith Collection
(UUK&SCOP)
Ltd
West Country Inventors
University of Edinburgh IP Club
The British Association of
Academics
The International
Federation of Industrial Wheal Associates Ltd
University of Glasgow
Property Attorneys (FICPI -
University of Hull Yahoo
UK)
The Laureate Company University of Leicester Yorkshire Garland Group
The Learning Machine University of Liverpool

B CALL FOR EVIDENCE
CALL FOR EVIDENCE

B.3 This Call for Evidence will form a key part of the evidence base that the Review team
can use to develop its analysis. It will be used alongside a range of other evidence sources,
including quantitative data; surveys and views of representative groups; visits; seminars; and
interviews. We encourage stakeholders to submit evidence in three areas:
• First, we invite evidence on a series of General Questions for each of these

elements of the IP system identified. These are set out below.
• Second, there are also a number of Specific Issues on which we would

particularly welcome evidence. These are also set out below.
• Finally, we also invite respondents to highlight other issues on which the

Review should focus its attention that are within our scope, but not listed
below.
GENERAL QUESTIONS
How IP is awarded
1. Are there barriers to obtaining IP rights due to system complexity? What could be done
to improve this situation?
2. How easy is it to find out about obtaining IP rights? What could be done to improve
awareness for businesses and innovators? Is there sufficient awareness of the need to
protect IP internationally?
3. Are there barriers to obtaining UK IP rights on grounds of cost? What drives these costs?
4. How do these costs compare internationally in your organisation’s experience?
5. Do you have any comments on the UK Patent Office fees structure for obtaining and
renewing IP protection?
6. Is lack of trust in the system a barrier? To what extent do you rely on other tools to bring
innovation to the marketplace, such as being first to market, maintaining trade secrets,
or using an open innovation model to generate value through reputation or network
effects?
7. Are there specific barriers to obtaining IP rights in your sector?
8. Are there specific barriers to obtaining IP rights for small businesses or individuals?
9. How well does the national system for awarding IP, administered by the Patent Office
perform? How well do the international and European systems work?
How IP is used
1. What types of IP does your organisation use and why?
2. To what extent do you seek multiple overlapping forms of IP protection?
3. To what extent are these decisions influenced by sector-specific considerations?

CALL FOR EVIDENCE B
4. How does your company value its IP? Are there problems with raising finance against
intangible assets based on IP? What improvements could be made in this area?
5. To what extent does the term of IP rights at the margin affect investment decisions?
6. How well does the UK IP system promote innovation?
7. To what extent does your organisation make use of other methods used by Government
to encourage innovation, such as public funding?
8. Are data on the use of patents and other forms of IP useful as a means of measuring
innovation?
9. Do you have any evidence as to the static or dynamic costs that IP rights (as statutory
monopolies) impose on the economy?
10. Have you encountered patents or other IP rights being used defensively, i.e. obtained
not to develop products, but only to prevent others from doing so? Under what
circumstances do you consider this acceptable?
How IP is licensed and exchanged

1. How easy is it to negotiate licences to use others’ IP for commercial or non-profit
purposes?
2. What mechanisms do you use for finding potential licensing partners?
3. How easy is it to use others’ IP for research purposes? Have you experienced difficulty
around research exemptions?
4. Are there specific barriers to licensing in the main forms of IP currently used: patents,
copyright, trade marks, and designs?
5. Are there barriers to licensing IP on grounds of cost? What drives these costs?
6. Are there specific barriers to licensing IP in your sector?
7. Does your organisation use methods to facilitate exchange of IP - such as cross-licensing

or pooling IP rights with other firms or organisations?
8. Are there specific barriers to licensing IP rights for small businesses or individuals - for
example barriers to entry to patent pools?
9. Are there barriers to trade and exchange of IP internationally?
10. Does your organisation consider renewing patents using “licence of right” provisions in
patent law (which entitle any person to a licence under your patent and reduce your
renewal fees by half)?
11. What could be done to improve “licence of right” provisions and business awareness of
them?
12. Do you have any experience of the compulsory licence provisions within current patent
law? Are they effective? How could they be improved?

B CALL FOR EVIDENCE
How IP is challenged and enforced

1. Are there specific problems with enforcing the main different forms of IP: patents,
copyright, trade marks, and designs?
2. Are there barriers to challenging infringement and enforcing your IP rights on grounds
of cost? What drives these costs?
3. To what extent does your organisation make use of other methods than litigation to
resolve IP infringement cases, for example the Patent Office opinion service, mediation
services, Alternative Dispute Resolution, or the Copyright Tribunal?
4. To what extent do you use IP litigation insurance? How effective is it?
5. Are there barriers to using such methods to settle IP disputes without recourse to
litigation? How might they be removed?
6. Are there specific barriers to challenging and enforcement of IP rights for small
businesses or individuals?
7. To what extent is the risk of litigation a factor in your organisation’s investment in

innovation?
8. What are the principal barriers to efficient and successful challenge and enforcement
internationally?
SPECIFIC ISSUES
Current term of protection on sound recordings and

performers’ rights
Background: The Review will fulfil the Government’s commitment to examine whether the
current 50 year term of protection on sound recordings and performers’ rights in sound
recordings is appropriate, in the light of its extension to 95 years in a number of other
jurisdictions.
1. What are your views on this issue?
2. Is there evidence to show the impact that a change in term would have on investment,
creativity, and consumer interests?
3. Are you aware of the impact that different lengths of term have had on investment,
creativity, and consumer interests in other countries?
4. Are there alternative arrangements that could accompany an extension of term (e.g.
licence of right for any extended term)?
5. If term were to be extended, should it be extended retrospectively (for existing works) or

solely for new creations?

CALL FOR EVIDENCE B
Copyright exceptions – fair use/fair dealing
Background: There are a number of exceptions to copyright that allow limited use of
copyright works without the permission of the copyright holder.
1. What are your views on the current exceptions in copyright law?
2. Could more be done to clarify the various exceptions?
3. Are there other areas where copyright exceptions should apply?
4. Are the current exceptions adequate or in need of updating to reflect technological

change? For example copyright law in the UK does not currently have a private “fair use”
exception. Such an exception might allow individuals to copy music CDs onto their PC
and MP3 player for their personal use. Should UK law include a statutory exception for
“fair use”?
5. How would you see content owners being compensated for such use?
6. To what extent has technological change presented difficulties in use of copyrighted

material in the field of education?
7. Are there issues concerning the archiving of material covered by copyright?
Copyright – digital rights management

Background: Increasingly digital media content is distributed with digital rights management
(DRM) technologies that can enable rights-holders to track usage and prevent unlicensed
copying by technological means. However concerns have been raised about interoperability
and that such technologies may impair the content consumer’s legal rights. For example they
may be unable to take into account exceptions to copyright, the ultimate expiry of copyright
term, or the future evolution of technology. They may therefore undermine legitimate rights
to access digital content, now and in the future. (NB: We are aware of all formal submissions
that have been made to the All Party Parliamentary Internet Group on this issue.)
1. Do you have a view on how the use of digital rights management technologies should be
regulated?
Copyright – orphan works

1. Have you experienced any difficulties in identifying the owners of copyright content
when seeking permission to use that content?
2. Do you have any suggestions on how this problem could be overcome?
Copyright – licensing of public performances

1. Have you encountered problems with the system of licensing and paying royalties to
collecting societies for public performance of music and/or sound recordings?
2. Could the system be clarified or simplified, and if so how do you see this working?

B CALL FOR EVIDENCE
Pa t e n t s – u t i l i t y m o d e l s
Background: Some countries, notably Germany, have a “utility model” system offering
protection for simple inventions, usually subject to less examination and shorter terms than
standard patents.
1. Do you have a view on some sort of second tier patent system?
2. Has your organisation encountered problems in protecting its IP internationally where

such systems exist?
P h a r m a c e u t i c a l S u p p l e m e n t a r y Pr o t e c t i o n C e r t i f i c a t e s
(SPCs)
Background: SPCs are a “sui generis” IP right available in EU Member States for
pharmaceutical products (as well as plant protection products). The standard patent term is
20 years. SPCs aim to compensate rights holders for the time required to obtain regulatory
approval for their products. Where regulatory approval is issued more than five years after a
patent is granted, SPCs may be granted to extend the term of protection on the active
ingredient in the patented product. SPCs last for a term corresponding to the period elapsed
between the five-year point and the point at which the product reaches market, up to a
maximum term of 5 years.
1. Does your organisation use SPCs?
2. How fair and effective are they in delivering an incentive for investment?
3. How could they be improved?
4. Should the term of SPCs be more flexible – perhaps relating straightforwardly to the
period between patent award and regulatory approval?
Tr a d e M a r k s – i n t e r n a t i o n a l i s s u e s
1. To what extent does your organisation register its trade marks at the European rather
than national level?
2. Could the UK trade mark system be improved to work better alongside the European
system?
Designs – registered designs and unregistered design

rights
1. To what extent does your organisation rely on registered designs? And on unregistered
design rights?
2. To what extent does your organisation register its design at the European rather than
national level?
3. To what extent does your organisation rely on the European unregistered design right
rather than the national UK unregistered design right?
4. Could the UK registered design be improved to work better alongside the European
system?
5. Could the UK unregistered design right be simplified to work better alongside the
European unregistered design right?
6. Do you see a useful role for the UK unregistered design right alongside the European
design right?

CALL FOR EVIDENCE B
Legal sanctions on IP infringement
1. Are you aware of any inconsistencies or inadequacies in the way the law applies legal
sanctions to infringement of different forms of IP or to different circumstances?
2. For example, should criminal sanctions on online infringement be the same as those
relating to physical infringement?
Coherence between competition policy and IP policy

1. Has your organisation experienced any activity linked to IP rights that you regarded as
unfair competition?
2. How did you deal with this problem?
3. Was competition law effective at controlling this behaviour?
4. Should competition law have a greater role to play in regulating IP?
5. How would you see the system working?
Pa r a l l e l I m p o r t s / I n t e r n a t i o n a l E x h a u s t i o n
Background: European law does not allow firms to use trade mark or copyright law to prevent
their goods sold in one EEA Member State from being imported and resold in another
Member State – i.e. they are not able to segment the EU market. However European law does
allow the use of trade mark and copyright law to restrict the imports to EU Member States of
goods sold outside the EEA. It also specifically inhibits EU Member States from legislating to
remove such import restrictions at the national level – so called “international exhaustion” of
trade marks or copyright. There has been a good deal of debate, both here in the UK and at
EU level, about the costs and benefits of removing restrictions on parallel imports. There is a
further issue of firms taking advantage of variations in prices on pharmaceutical products
across the EU and repackaging drugs bought cheaply elsewhere within the EEA to resell
within the UK.
1. Has your company been affected by parallel trade?
2. What would be the impact on your organisation of a change in the current rules?
3. What evidence is there of the costs and benefits, both for consumers and firms of the
current rules?

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Gowers Review

Published with the permission of HM Treasury on behalf of

Any enquiries relating to the copyright in this document

This document can be found on the Treasury website at:

For general enquiries about HM Treasury and its work, contact:

Printed by The Stationery Office 11/06 349453

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Chapter 2 Challenges and Opportunities 23

Chapter 6 Governance 111

Chapter 7 Conclusion 119

Annex A Glossary 121

Annex B Call for evidence 129

• strengthening enforcement of IP rights, whether through clamping down on piracy or trade in

The Gowers Review 1

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• giving Trading Standards the power and duty to enforce copyright

• better provision of IP information to UK businesses at home and abroad. This

• consulting to enable fast-track litigation to be used in IP cases. This should

• supporting the establishment of a unitary Community Patent (COMPAT). This

• proposing an ‘orphan works’ provision to the European Commission. This will

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• the instruments of the IP system (patents, copyrights, trade marks and

• the operation of these instruments, and makes recommendations to improve

• the governance of the IP system, and makes recommendations to improve IP-

The full list of recommendations follows.

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List of recommendations in the Review

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Box 1.1: IP resides in everyday objects

The contents of a jar, the lid and seal may

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IP rights provide incentives to create knowledge

1.5 IP rights create legal barriers to accessing or using knowledge or information by

IP rights help to develop public knowledge

The costs of IP and the need for balance

Chart 1.1: The instruments of IP and common applications

Useful idea Original expression

• involve an inventive step; an invention involves an inventive step if, when

• be capable of industrial application; an invention must be capable of being

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• not be ‘excluded’; an invention is not patentable if it is: a discovery; a scientific

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1.25 Industries such as pharmaceuticals, biotechnology and high-tech rely heavily on

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Chart 1.2: IP policy governance

UK courts UK Patent Office (UKPO)

EU OHIM EPOrg WTO WIPO

• award: granting UK patents as well as registering UK trade marks and designs;

• awareness: responsibility for raising awareness of IP-related issues among

• policy: advising ministers on IP policy;

• tribunal function: Patent Office has a role in deciding disputes in respect of

• enforcement: leading the development of the UK IP crime strategy.

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• the minimum rights that must be granted to authors, performers, broadcasts

• promote the protection of IP throughout the world through cooperation

• ensure administrative cooperation among the unions.15

• standards – TRIPS sets out minimum standards in relation to the subject

• dispute settlement – the agreement makes disputes between WTO members